The People’s Bank of China (PBOC) has held off from trimming interest rates following the US Federal Reserve’s latest cut in response to the impacts of the coronavirus, with analysts highlighting earlier measures adopted by the Chinese central bank.
On 3 March US Federal Reserve made its first emergency rate cut since 2008 with a 0.5 percentage point reduction that brought the target range down to 1 to 1.25%.
The central banks of major economies including the European Union, Canada and New Zealand are expected to follow suit, as the coronavirus continues to spread globally.
On 4 March the PBOC announced that overall liquidity in the Chinese banking system remained at “rationally ample levels,” and that it would not be undertaking any reverse repo operations on that date, leaving rates unchanged.
Shenwan Hongyuan analysts say that the Chinese central bank acted in advance with short-term liquidity injections, and rates reductions that included a 10 basis point cut for one-year medium-term lending facilities (MLF) to 3.15% on 17 February, and a 10 basis point cut for 7 day reverse repo rates to 2.4% on 3 February.
“Because the central bank previously unveiled a number of policy measures in the areas of liquidity supply and interest rate reductions to address the impacts of the [coronavirus], at present what needs to be done is to let policy be implemented and observe what policy results are like,” said Fortune Securities chief economist Wu Chaoming (伍超明).
“Following the release of data in March, assessment will be made as to whether overall targets can be reached, and then a decision made as to whether or not to reduce rates.
“For this reason the likelihood of a rate reduction in March is low, unless special circumstances arise.”