A PBOC rate cut is avoided, as China's economy grows

Data showed that the world's second-largest economy had a strong start to the year and the central bank refrained from cutting its policy rate.

In response to the People's Bank of China's decision to keep interest rates on its one-year medium-term lending facility unchanged at 2.85%, 10-year bond yields rose for the first time in two days. PBOC cut interest rates for the first time in almost two years in January, while injecting 100 billion yuan into the banking system. Bloomberg polled 17 economists, ten of whom forecast the rate to be cut.

It is disappointing for the market that the PBOC left the key rate unchanged, said Xing Zhaopeng, senior China strategist at Australia and New Zealand Banking Group. China would remain dovish going forward, but "any move would be targeted and measured," he added.

In the first two months of this year, China's economy started on solid ground, showing the PBOC's patience on interest rates. Growth in industrial production, retail sales, and investment surpassed economists' forecasts by large margins.

China's goal of achieving 5.5% growth this year remains on the line, however, as the surveyed unemployment rate rose to the highest level in a year. On top of that, quickly spreading Covid cases and soaring commodity prices created further risks to growth in March.

In mainland China and Hong Kong, stocks decreased as Shanghai Shenzhen CSI 300 Index dropped 1.56% and the Hang Seng index dropped nearly 3%.

A PBOC rate cut is avoided, as China's economy grows