Expected rate cut in China did not come

While market players expect easing from China, the People's Bank of China avoided interest rate cuts and additional liquidity.

The People's Bank of China (PBOC) kept the 1-year loan reference rate at 2.85 percent. A significant majority of economists surveyed by Bloomberg had predicted that interest rates would be cut by 5-10 basis points. Only 6 economists expected the banks to keep interest rates constant.

The People's Bank of China, which kept the interest rate constant, also refrained from offering extra liquidity to the market. 150 billion yuan ($23.5 billion) of refinancing occurred in maturing assets in the medium-term borrowing program. Economists had expected a net injection of 100 billion yuan ($15.7 billion).

NatWest Group China Economist Liu Peiqian stated that the People's Bank of China wants to prevent the rise of a new debt wave with excessive expansion.

Eyes turned to mandatory responses
While the expected relaxation steps from the People's Bank of China did not come, all the attention is now on the decision on required reserves.

After the Chinese cabinet announced that the Central Bank would use policy tools, including reductions in required reserve ratios, if necessary, it led to expectations of a reduction in required reserve ratios.

Required reserves were last reduced last year at the July and December meetings, following similar statements by Prime Minister Li Keqiang.