China: PBOC’s yield control targeted to stabilize long-term rates – UOB Group

The PBOC announced it will borrow China government bonds (CGB) from primary dealers. PBOC’s monetary policy remains biased towards easing in order to boost the economic recovery prospects

PBOC targets to stabilize long-term rates

“The PBOC announced it will borrow China government bonds (CGB) from primary dealers, with the possibility that it will sell these CGBs to stabilize long-term rates. This is supportive of CNY but the currency direction remains heavily influenced by Fed’s monetary policy.”

“It is thus not to be seen as a liquidity tightening move as PBOC’s monetary policy remains biased towards easing in order to boost the economic recovery prospects.”

“We maintain our forecast for the 1Y LPR to fall to 3.20% by end-4Q24 (current: 3.45%) while the 5Y LPR may stay on hold at 3.95% through the rest of 2024 after the 25 bps reduction in Feb. There is also a possibility of another 50 bps cut to the reserve requirement ratio (RRR) in 2H24 to release CNY1 tn of long-term liquidity.”