(Bloomberg) — China traders get a chance to see how their policy easing bets are panning out Wednesday, when the central bank decides how much cash to pump into the system to meet maturing medium-term loans.
The People’s Bank of China is likely to roll over about half of the 950 billion yuan ($149 billion) in loans expiring, according to the median projection in a survey of 11 analysts. The tight range of 300 billion to 500 billion yuan in the poll suggests plenty of scope for a market surprise should the central bank come in above or below those figures.
Investors have ratcheted up their expectations for easier policy from Beijing amid a slowing Chinese economy, a property crisis and state media reports that a cut to the loan prime rate is coming in the near future. That acts as a de-facto benchmark for new loans and is guided by the medium-term lending facility rate — which is expected to hold steady at 2.95% on Wednesday, according to the survey.
China Rate-Cut Calls Gain Momentum as Top Economists Weigh In
Bonds have rallied and foreign funds have poured into the stock market in record amounts as traders sense a pivot away from a lengthy deleveraging campaign. Twelve-month yuan interest-rate swaps have fallen to the lowest since July 2020, a sign traders are betting on easier monetary policy.
In a surprise easing move last week, the PBOC cut banks’ reserve-requirement ratio — releasing 1.2 trillion yuan of liquidity into the system effective Wednesday — with some analysts pointing to the risk of contagion from China Evergrande Group’s debt crisis as a likely reason.
In a statement alongside that cut, the PBOC said banks will use part of that liquidity to pay back medium-term loan maturities or replenish long-term capital.
Economists predict Beijing is set to become more pro-growth next year, with top decision makers recently vowing to ensure stability and “front load” policies. Calls for lower interest rates have been gaining momentum with the fragile property market putting the brakes on the economic recovery.
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