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Policy Rates (Jan.)

Despite a cut being widely expected, the MLF was again kept unchanged today – for a fifth straight month. The main factor holding the PBOC back was probably lingering concerns about the renminbi. This roadblock should disappear over the coming months as US yields continue to fall. And with the case for more monetary easing still strong, both in terms of the need to support the economy and limit downside inflation risks, we expect policy rate cuts and reductions to RRR before long. We also think the PBOC will continue to ramp up targeted measures, such as the PSL injections.

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