More rate cuts likely from PBoC

Following a stock market sell-off and increasing fear of a looming financial crisis, the PBoC announced a symmetric 25bp benchmark rate cut on Tuesday, combined with a 50bp RRR cut. This is the second such combined cut, after a similar move on 27 June. 

Moreover, the PBoC removed the deposit rate ceiling for time deposits of 1y+, another step towards full interest rate liberalisation. The latest easing matches our baseline interest rate and RRR forecasts and is consistent with our weaker-than-consensus USDCNY forecast of 6.8 by year-end. 

"One more benchmark rate cut of 25bp is expected in Q4, due to weaker-than-previously-expected Q3 growth, and look for two more 50bp RRR cuts in Q4 2015, given our expectations of persistent capital outflows", says Barclays. 

Today's move is expected to help support sentiment and economic growth in Q4, though the risks to the forecasts of 6.8% in 2015 and 6.6% in 2016 will remain to the downside.