China Stocks Rise as PBOC Seen Cutting Policy Rate, RRR Soon By Bloomberg

(Bloomberg) — Chinese stocks rose as expectations grew that the central bank may cut its key policy interest rate on Friday, boosting sentiment among investors who are waiting on authorities to take more steps to revive growth.

The CSI 300 Index rose as much as 1.3%, with consumer stocks leading the advance. The rose 0.05% to 6.3643 per dollar, while the 10-year government bond yields were steady. 

Bets for easing have risen as China’s largest Covid-19 outbreak in two years worsens the growth outlook and saps investor sentiment already hurt by persistent regulatory headwinds and rising global borrowing costs. Still, investors say unless China loosens grips on its tight Covid-19 containment policy, a rate cut by itself won’t be enough to turn the tide on stocks.  

READ: Xi Says China Must Stick to Covid Zero Even as Costs Mount

The negative overhang from “persistent fears” of consumers and businesses to borrow implies that cuts to interest rates will not be enough to trigger a significant rally, according to Kelvin Wong, an analyst at CMC Markets (Singapore). “The best-case scenario is some sort of stabilization in the equity market because of the rate cuts.”

Fifteen of the 20 economists surveyed by Bloomberg predict the People’s Bank of China will lower the interest rate on one-year policy loans on Friday — 11 of them forecast a 10 basis-point reduction to 2.75% and four expect a 5-point drop. The rest see no change.

The PBOC is also likely to reduce the reserve requirement ratio — the amount of cash that banks must hold in reserve — in the coming days after the State Council, China’s cabinet, hinted strongly of a cut on Wednesday, saying it would lower the ratio “at an appropriate time.”

‘Limited Boost’

Even with Thursday’s gains, the benchmark is on course for a second week of losses. Traders have been debating whether the market have hit the bottom after a sweeping set of promises from authorities in mid-March saw shares stage a dramatic rebound following a historic rout.

“This will help the market from being utterly disheartened by the lack of monetary easing action, but I think it will give only a limited boost,” said Wang Zhuo, fund manager at Shanghai Zhuozhu Investment Management Co. “I would like to see how much of a cut, and whether a rate cut follows, before becoming more upbeat, but at least its a small comfort.”

In Hong Kong, the benchmark advanced as much as 0.8%, while a gauge on Chinese tech stocks rose more than 1%. 

©2022 Bloomberg L.P.