Bond yields in China remain attractive as central bank lends support
Greater China Sales Traders
Monetary Policy Update
50bp reserve requirement ratio (RRR) cut effective 16 September. PBOC also announced an extra 100bps RRR cut for city commercial banks operating solely within their respective provinces, of which 50bps will take effect on 15 October and 50bps on 15 November. These measures could release CNY 900bn of long-term funding.
The one-year official LPR(Loan Prime Rate) was lowered to 4.20% from 4.25%. The five-year LPR remained at 4.85%. The 5 bps decline in China’s official one-year Loan Prime Rate reflects the authorities’ intent to reduce funding costs at a measured pace. The small cut, following a similar reduction last month, suggests the People’s Bank of China going forward may make more incremental, but higher frequency, adjustments to interest rates.