BofA Merrill Lynch said market expectations of a near-term interest rate cut have been rising, following a series of easing measures from the PBoC such as targeted RRR cuts and relending.
In addition, a recent call for rate cuts by a senior PBoC official has certainly fueled
hopes, with an increasing number of sell-side economists joining the camp. Xu Nuojin, a deputy head of the statistics department at the PBoC, said on 16 June that the focus of a prudent monetary policy should be appropriately cutting RRR and interest rates in the near term to lower financing costs for investment.
However, BofAML maintained its view that the chance for a cut of the benchmark bank
deposit rate and lending rate during the remainder of 2014 is quite small. Though there is still a benchmark lending rate for banks, all regulatory restrictions on bank lending rates have been scrapped since July 2013.
On the other hand, bank deposit rates are clearly below market rates, as evidenced by the higher yield on bank wealth management products (WMPs) and money market funds. Moreover, the PBoC has already been promoting short-term interbank rates, especially
overnight Shibor, as a new policy anchor.
This year the PBoC has proactively guided interbank rates lower to support growth and stabilize financial markets. In this regard, interest rates have already been lowered by the PBoC with an official cut of the existing policy rates, BofAML noted.
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