Reuters reported early on Monday that Asian investors were holding their breath, waiting to see how committed Beijing was to policy easing through anticipated rate cuts. Their fears were met with only a slight 0.10% reduction in the Loan Prime Rate (LPR), from 3.55% to 3.45%.
This cut was smaller than last week’s 15-point decrease in the one-year medium-term lending facility (MLF) and the 0.10% reduction in the less significant seven-day reverse repo rate, bringing it to 1.90%.
The People’s Bank of China kept the five-year rate unchanged at 4.2%, a move that also lacked conviction. There have been suggestions that this rate might be cut by 0.15% as well.
In essence, Asian investors believe that China has missed yet another opportunity (the second in three months) to demonstrate its commitment to stabilizing the economy and convincing stakeholders, including investors and consumers, of its dedication to providing stimulus.
On Sunday, the People’s Bank of China announced that Beijing would coordinate financial support to address local government debt issues. There have also been reports indicating encouragement for commercial banks to increase lending. These statements followed a joint meeting with the National Financial Regulatory Administration and the China Securities Regulatory Commission.
However, investors would prefer substantial fiscal spending over minor rate cuts, and as of now, there is little indication of such measures being implemented.
This cautious sentiment has kept MSCI’s broadest index of Asia-Pacific shares outside Japan mostly unchanged, with a mere 3.9% decline last week, reaching its lowest point for the year thus far.