China stocks rise as PBOC seen cutting policy rate, RRR soon

Beijing

CHINESE stocks rose as expectations grew that the central bank may cut its key policy interest rate on Friday (Apr 15), boosting sentiment among investors who are waiting on authorities to take more steps to revive growth.

The CSI 300 Index rose as much as 1.3 per cent, with consumer stocks leading the advance.

The onshore yuan rose 0.05 per cent to 6.3643 per US dollar, while the 10-year government bond yields were steady.

Bets for easing have risen as China's largest Covid-19 outbreak in 2 years worsens the growth outlook and saps investor sentiment already hurt by persistent regulatory headwinds and rising global borrowing costs.

Still, investors say unless China loosens grips on its tight Covid-19 containment policy, a rate cut by itself won't be enough to turn the tide on stocks.

The negative overhang from "persistent fears" of consumers and businesses to borrow implies that cuts to interest rates will not be enough to trigger a significant rally, according to Kelvin Wong, an analyst at CMC Markets (Singapore). "The best-case scenario is some sort of stabilisation in the equity market because of the rate cuts," he added.

Fifteen of the 20 economists surveyed by Bloomberg predict the People's Bank of China (PBOC) will lower the interest rate on 1-year policy loans on Friday - 11 of them forecast a 10 basis-point reduction to 2.75 per cent and 4 expect a 5-point drop. The rest see no change.

The PBOC is also likely to reduce the reserve requirement ratio (RRR) - the amount of cash that banks must hold in reserve - in the coming days after the State Council, China's Cabinet, hinted strongly of a cut on Wednesday, saying it would lower the ratio "at an appropriate time".

Even with Thursday's gains, the benchmark is on course for a second week of losses. Traders have been debating whether the market have hit the bottom after a sweeping set of promises from authorities in mid-March saw shares stage a dramatic rebound following a historic rout.

"This will help the market from being utterly disheartened by the lack of monetary easing action, but I think it will give only a limited boost," said Wang Zhuo, fund manager at Shanghai Zhuozhu Investment Management.

"I would like to see how much of a cut, and whether a rate cut follows, before becoming more upbeat, but at least it is a small comfort."

In Hong Kong, the benchmark Hang Seng Index advanced as much as 0.8 per cent, while a gauge on Chinese tech stocks rose more than 1 per cent. BLOOMBERG