China’s monetary policy easing should lower financing costs

The broad-based 25bps interest-rate cut announced on 10 May signals that the People's Bank of China (PBoC) is maintaining a prudent monetary policy stance with an easing bias to stabilise growth. 

The rate cut should help banks lower lending costs and boost credit growth. Given that inflation is expected to rise in H2-2015, the 10 May rate cut will be the last of the current cycle.

From here on, the PBoC may use other policy tools to guide market interest rates down and supplement liquidity. 

"We still expect another 100bps of RRR cuts in H2, in one or two moves", said Standard Chartered in a report on Tuesday.