Global Banks Scale Back China Rate-Cut Calls, See Policy Rate On Hold This Year

• Major global investment banks now expect China to keep official interest rates steady this year, scaling back earlier rate-cut calls, as the impact from the Middle East conflict appears ​limited, even as Beijing maintains a loose policy stance. The receding rate cut expectations ‌also comes as China holds up better than its regional peers amid the Iran war, while the broader economy has shown early signs of a rebound.
• "Against the backdrop of China's relative resilience amid Hormuz disruptions, better-than-expected activity ​data in January-February, and the producer price index (PPI) likely turning positive in March, we see ​no clear catalyst for a policy rate cut in 2026," Xinquan Chen, ⁠China economist at Goldman Sachs, said in a note.
• "We therefore remove our call for a 10-basis-point (bps) ​rate cut in the third quarter from our baseline," he said, while maintaining expectations for a ​50 bps reduction in cash that banks must set aside as reserves.
• While many other countries are grappling with higher inflation risks, China has faced deflationary pressure, giving it some leeway to counter inflation concerns stoked by rising ​oil prices. Additionally, China is largely insulated from the energy supply shock because it has ​higher oil and gas reserves.
• Late on Tuesday, the United States and Iran ​agreed to a two-week ceasefire. Meanwhile, China's central bank ​has said it will maintain an "appropriately loose" monetary stance this year, deploying ​tools including ⁠reserve requirement cuts and interest rates to keep liquidity ample.
• The banking system has shown signs of abundant liquidity since the start of the month, with the trade-weighted overnight repo hovering at near ⁠three-year lows ​and the seven-day repo falling below the main policy ​rate. "As the growth momentum is within the policy target, we no longer expect policy rate cuts in both 2026 and 2027," ​analysts at ANZ said in a note.

(Source: Reuters)