Global banks scale back China rate-cut calls, see policy rate on hold this year

• Goldman Sachs removed its call for a 10-basis-point rate cut in Q3 2026 but maintains expectations for a 50 bps reduction in bank reserve requirements
• China's economy showed early signs of recovery with better-than-expected January-February activity data and PPI likely turning positive in March 2026
• The banking system shows abundant liquidity with overnight repo rates hovering near three-year lows and seven-day repo falling below the main policy rate

Summary: Global Banks Scale Back China Rate-Cut Calls

Key Development: Major global investment banks have reversed earlier predictions, now expecting China to maintain official interest rates unchanged throughout 2025, citing the country's economic resilience amid Middle East tensions.

Policy Shift Details:

• Goldman Sachs has removed its forecast for a 10-basis-point rate cut in Q3, while maintaining expectations for a 50 bps reserve requirement ratio reduction
• ANZ no longer anticipates policy rate cuts in either 2026 or 2027
• Standard Chartered believes China has "effectively ruled out" rate cuts for now

Economic Rationale:

• Better-than-expected January-February activity data
• Producer Price Index (PPI) likely turned positive in March
• China demonstrating relative resilience compared to regional peers during Iran conflict
• Growth momentum aligns with policy targets

Middle East Impact:

• China largely insulated from energy supply shocks due to higher oil and gas reserves
• Limited domestic policy response aside from adjustments to retail fuel prices
• U.S.-Iran two-week ceasefire agreement provides additional stability

Monetary Policy Context:

China's central bank maintains an "appropriately loose" stance, with liquidity indicators showing:

• Overnight repo rates near three-year lows
• Seven-day repo falling below main policy rate

Market Implications:

China's deflationary pressures, contrasting with global inflation concerns, provide policy flexibility. However, current economic stability removes the immediate catalyst for aggressive monetary easing, suggesting a stable rate environment through 2025-2027.