China Stimulus: This week the People’s Bank of China (PBOC) cut their benchmark monetary policy interest rate by 5 basis points to 3.65% (and reduced the 5-year benchmark mortgage rate by 15 basis points).

Small rate cuts, yes. But big signal in terms of policy direction.

There have been increasing, albeit still relatively piecemeal/incremental moves to ease monetary policy in China (nothing like previous big stimulus rounds of prior years just yet, and nothing of the type of moves we saw globally in 2020).

But our monetary and fiscal stimulus indicators have clearly turned the corner this year towards the stimulus side from previously tight settings.

There is a clear and compelling case for the PBOC to undertake further stimulus given economic downdrafts (structural, cyclical, one-off factors triggering a slowdown) and disinflation (our measures of core inflation have peaked and turned down in China).

Not to mention the ongoing property market downturn, and the economic and financial risks stemming from that.

I would expect more and more incremental stimulus measures to be announced in the coming months.

This would come at a particularly interesting time given that much of the rest of the world is still tightening, and as global growth heads into recession.

(Click on image to enlarge)

Key point: China is moving slowly but surely towards greater stimulus.

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