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PBOC rate cuts: Go big or go home

The quantitative tools that the PBOC relied on to pump up credit growth during previous downturns have become ineffective due to weak demand. That leaves interest rates as the main avenue for monetary support. But bank lending rates need to decline to a much larger extent, by a further 100bps or more, to have a meaningful impact. The main barrier to doing so is the PBOC’s focus on exchange rate stability.

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