"The PBoC could have stepped up liquidity injections through open market operations or unconventional tools, but they've chosen not to," said Wei Yao, China economist for Société Générale. "If the [stock] market expects the PBoC to flood the system with cash to support growth, I don't think that's realistic."
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But the behaviour of China's stock market has left little doubt that easing expectations — rather than optimism about the real economy or corporate earnings — are driving the rally.
The Shanghai Composite Index rallied on Tuesday after a manufacturing survey showed contraction in the sector for the first time since May, as investors bet the weak data would raise the odds of more stimulus. The market closed at a four-year high on Wednesday.
The jump in market interest rates contrasts with the response to previous benchmark rate cuts.
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The seven-day repo rate ended Wednesday 0.23 percentage points above its level on the eve of last month's rate cut, on a weighted-average basis. At the same point following the PBoC's previous rate cut, in July 2012, the seven-day rate was 66 basis points lower.
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Money-market interest rates do not always track rates on corporate loans and home mortgages, which were the main targets of PBoC's rate cut. But there are also signs that the cost of loans to the real economy has also risen since last month.