PBoC benchmark interest rates cut is not a sign of panic

"Sunday's cut to benchmark interest rates by the PBOC is not a sign of panic as some will argue but a rational response to weaker-than-expected data." said Capital Economics 

Policymakers have room to act more forcefully if needed but are choosing to dole out stimulus in a measured way. The 12m lending rate was cut by 25bp to 5.10% and other benchmark rates by similar amounts. 

Friday's disappointing trade figures, the first hard data for April and the first for a while not suffering from Lunar New Year distortions, were presumably the immediate trigger.  The immediate impact will be to lower financing costs for those borrowing from banks, which disproportionately are SOEs. 

"We expect inflation to rise later in 2015. If we're right, real interest rates will decline automatically, with no further change to benchmark rates. As such, benchmark rates may not fall much further. We do however, expect a further 150bp reduction in the RRR before the end of 2015, plus continued direct support for lending in the form of re-lending operations." adds Capital Economics