Significant monetary easing from China's central bank may be just around the corner, according to Barclays.
"We see an increasing probability that more significant monetary easing, including (targeted) interest rate or RRR (reserve requirement rate) cuts, will be announced in the coming weeks," Jian Chang, China economist for Barclays said in a note published on Thursday.
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"[But] while the direction is clear, the details of the PBoC's next move are uncertain," he added.
Slowing growth rates have led investors to suspect that the People's Bank of China could soon undertake easing measures to prevent an economic hard landing. China's first quarter gross domestic product (GDP) growth came in at an 18-month low of 7.4 percent, well below double digit growth rates achieved as recently as 2010.
Three potential paths
According to Chang, easing could take three directions: the introduction measures to boost credit availability in specific sectors; interest rate cuts; or RRR rate cuts.
Cutting the RRR rate across the board would lower the amount of money banks have to keep on their books and consequentially increase the amount they can lend out. In April, the PBOC cut the RRR for some county-level rural commercial banks.
"In our view, cutting interest rates would be a better policy [move] than broad-based RRR cuts, given the high leverage in the economy and weak demand on the one hand, and ample liquidity and unresolved implicit guarantees and 'moral hazard' on the other," said Chang.