[The Officer-in-Charge of the Bank’s Asian Economic Research and the Chief Economist of China stated: “We are still not expected to lower policy interest rates during the year, taking into account the prior and future downwards and savings rates, we believe that it is possible for LPR to downsize 10BP in the year”. ]

Over the past two weeks, key economic data for April have been centrally published, and most manufacturing PMI, foreign trade data, credit data are significantly less than expected and market expectations for precipitation are once again inflamed. More than ever, it is expected that the Chinese Central Bank will be downgraded for the first time in nearly two years, with a one-year medium-term lending facility (MLF) rate of 10 basis points (BP) to 2.65 per cent.

In response, the majority of economists and investors interviewed for first-consortium indicated that it was difficult to understand this expectation and that some believed that the possibility of losing interest was increasing but not a basic scenario; another view expressed that the probability of losing interest was minimal, since the current context was still recovery and policy space was needed for the future; moreover, the economist felt that control of macro-leveraging remained one of the tasks of the current year, a value of 289.6 per cent at the end of the quarter.

Most economic data in April are weaker than expected

The Pambo report mentions that the Bank of China is expected to move MLF interest rate 10BP down in public market operations on week one, and that, if so, it will be the first stipulation since August 2022, the same decline at that time. That view, however, contradicted the consensus expectation that it would remain unchanged.

“10BP’s precipitation is not drama, but it may indicate a relaxed commitment that will have a greater impact on confidence. As the current recovery is not comprehensive, this commitment is critical at this time, and it is clear that growth requires more support. Housing sales and exports declined in April compared to the previous month. The operational rate of the refinery and other HF indicators indicate that production is also slowing every month.”

The data for April showed signs of weakness over the previous three months. The manufacturing of PMI in China was 49.2 per cent in the same month, a significant drop of 2.7 percentage points over the previous month, with a marked decline in manufacturing climate and a simultaneous decline in production and new order indices. Although data for March were also declining, they were still above the 50 per cent mark.

At the same time, in April, the service sector business activity index was 55.1 per cent, a decline of 1.8 per cent over the previous month, and was still high, and the expansion of new service orders was still faster than business activities, reflecting the demand for supply and demand. But this is precisely a reflection of the current dilution of manufacturing and expansion of services.

The chief economist of the EPS is saying: “The current economic recovery in China depends to a greater extent on the recovery of services in the wake of the epidemic, as well as the accelerated growth of the digital economy driven by the development of artificial intelligent capacities, while industrial growth faces signs of weak demand and slow investment, and there are doubts about the sustainability of growth. From PMI data in April, the situation of renewed expansion in services and increased uncertainty in manufacturing growth is further highlighted.”

In addition, data on foreign trade had been over-expected in March and had begun to decline in April. Exports in United States dollars increased by 8.5 per cent in April at a higher rate than expected, but declined back from two highs in the previous month; import declines expanded to 7.9 per cent.

Financial data for the month of April, published last week (11 May), were the largest catalyst for precipitation. In April, the new yuan renminbi loan was weaker than the market forecast (the market survey averaged $1.4 trillion), although the data had increased by $73 billion less than the previous year’s low base figure. Concern was expressed that, following the increase in February and March, new medium- and long-term loans (mainly home loans) were again weak in April, with a contraction of 11.6 billion yuan (down by 84 billion yuan renminbi) and a weakening of the major urban real estate sales in April (down from 21 per cent in March). Short-term loans for households decreased by $126 billion in April, although there was a slight improvement over the same period last year (a decrease of $600 million less than the same).

“Scale increases and new loans are only half of the market’s expectations, indicating that the first wave of recovery after the outbreak has been reduced, or more or less. The weak credit data also indicate that the real estate market is currently performing poorly.” The international chief economist of Thalian International spoke to the press.

Also because most economic data were weaker than expected in April, it was felt that “the overall economic growth momentum was significantly slow and markets needed to be prepared for downside risks. The expectation of policy relaxation has been rising, and it seems imminent to be the second quarter of the policy downturn.”

The Officer-in-Charge of the Bank’s Asian Economic Research and Chief Economist-in-China told journalists that “we are still not expected to lower policy interest rates during the year, taking into account the previous and future downwards and savings rates, we believe that LPR (price on loan market quotations) would have the potential to downsize 10BP in the year”.

Wirtschaftsprüfer probability but low probability

In comparison to a quarter, agencies do now move up the probability of precipitation, but most do not think that the central bank would actually lower MLF interest rates.

“We believe that the possibility of precipitation is low despite the recent increase in probability.” The Chinese chief economist in the village of Wildland stated to the journalist that “even if the central bank of China reduced its main policy interest rate, including the seven-day repurchase rate and the one-year MLF rate, we are confident that the decrease will not exceed 10BP”.

It is a matter of concern that, in the near future, the interest rates on bank deposits have been reduced, and that the cost of precipitating the liability can ease the pressure on bank interest margins. However, it was argued that the central bank was extremely unlikely to reduce the benchmark interest rate for deposits, and that “on the contrary, we expect the central bank to increasingly use newly introduced window guidance to reduce the interest rate for deposits.”

There are four main reasons why the agency considers the probability of falling down. First of all, the direction remains recovery. The Senior Asia and the Pacific Stockpile (Timothy Moe) recently expressed his conviction that this year’s economic growth will reach 6 per cent, exceeding the expected 5 per cent target, although data were weak in April. He also mentioned that, according to his communications in Beijing and some HF data suppliers, GDP growth could reach at least 5.5 per cent this year, even taking into account recent weak data.

In this regard, the Secretary-General agrees that