SHANGHAI/BEIJING – China’s central banking is expected to intensify monetary easing efforts. However, a majority of the market participants in a Reuters poll on Thursday believes that the central Bank may not cut borrowing costs for medium-term policy loans.

The markets are now anticipating a decrease in the cash that banks have to hold as reserves. This is after the Wednesday call by the State Council (or cabinet) for timely access to such monetary tools.

Since early 2021, activity has declined in the world’s second-largest country. Traditional growth engines like consumption and real estate have been unable to keep pace with demand. A number of economists claim that the chances of a recession have been tilted towards the recent COVID-19-related disruptions, as well as tough lockdowns.

Yet, nearly 70% of traders and analysts polled said that there would be no increase in the interest rate for a 1-year medium-term loan facility (MLF), even though the central bank plans to renew loans of 150 billion yuan ($23.57 million) this Friday.

Eight of the 14 other respondents predicted that a slight 5 basis point (bps) reduction, and six others believed a 10-bps cut would be more probable.

The “Citi economists” base case includes a 50-bps wide-based reserve requirement ratio, (RRR), cut that will be confirmed by Citi as soon as April 15. This would release more than 1.2 trillion Yuan of liquidity. According to an American investment bank note, such a reduction could decrease the likelihood of a future MLF rate cut.

Investors also suggested that China’s monetary policy would be more flexible, with key rates and RRR being lowered, in order to diverge from other major economies. This could potentially lead to more capital outflows. This week saw the end of the yield premium that China had over the United States.

Ken Cheung of Mizuho Bank, chief Asian FX strategist said that the situation could become even more volatile if there is more capital repatriation stress and weaker (yuan sentiment) sentiment in later years.

Markets have been rattled by the recent lockdowns in Shanghai, the financial center of China, and other cities that were implemented to stop the spread of COVID-19. This has prompted concerns about wider economic disruptions and left policymakers no choice but offer additional stimulus to help the economy reach its growth goal of 5.5%.

Some economists warn that credit tightening might not be sufficient to reverse an economic downturn. Businesses and consumers have no desire to borrow money in these uncertain times.

($1 = 6.3660 renminbi)