PBOC stands pat, on-budget fiscal support maxed out

The People’s Bank clearly doesn’t feel under great pressure to “follow the Fed”. It left its policy rates on hold this week after the US Fed raised rates and we expect it to cut rates in the coming months. Meanwhile, after a recent surge in special bond issuance intended to support infrastructure investment, local governments have already hit their annual issuance quotas. Unless policymakers adjust budget deficit targets, they will need to relax constraints on off-budget financing if they want this fiscal boost to be sustained.