PBoC may need to cut interest rates – Westpac

Analysts at Westpac suggest that there is an opinion in the market that the PBoC may need to cut interest rates, but Westpac still believes that quantitative tools are more likely to be deployed.

Key Quotes

“If there is an interest rate cut, it is more likely to be in bank lending rates than OMO (open market operation) reverse repo rates. First, funding costs can be effectively lowered through the use of different liquidity facilities, without an outright interest rate cut. Second, when it comes to getting OMO rates and bank lending/deposit rates more in line with each other, our interpretation is that the higher bank rates ought to be brought nearer OMO rates. That said, if the benchmark 7-day repo rate falls near the 2% level and stays there sustainably, then the PBoC may need to adjust OMO rates to play catch-up.”