Please download PDF using the link above for the full report
- PBOC provides a comprehensive set of policy easing, spanning from quantitative ones (50bps RRR cut), to price-based policies (10bps cut on 7d repo rate and 25bps cut on few others), and structural policies (additional relending loan quotas for areas in line with the focuses of development.
- RRR and rate cuts arrive at a good timing when CNY is at relatively strong level.
- Moderate stock market reaction implies that today’s stimulus package is deemed moderate by the market.
- We expect additional 10bps cut on 7d repo rate in Q2 and 20bps in H2, and more financial support from various agencies as they are to implement the aims announced today, as well as the guideline of the Politburo meeting in April.
- USD/CNY: sentiment around tariffs talks remains an important driver for the pair, and could push the pair lower. Having said it, we maintain calls of 7.40 by Q2 and 7.45 by Q3, as current 7.226 can hardly reconcile with the tariffs increase announced by Trump administration, and more visible real economic activity deceleration in Q2, due to lack of significant fiscal stimulus before further clarification of the US tariffs on China. We think that as long as Trump’s aim to reduce the trade deficit with China remains unchanged, sizeable tariffs hike is the likely outcome. We expect a total 40% average US tariffs on imports from China, jumping up from prior 11~12% at end of 2024.
