China LPR cut comes as virus and economic risks mount

The People's Bank of China lowered the one-year Loan Prime Rate by 5 basis points earlier today to 3.80% from 3.85%.

In a Reuters poll last week, 29 of 40 traders and economists saw a cut so it wasn't a big surprise but it wasn't totally expected either. The PBOC surprised earlier this month by cutting the RRR rate after a puzzling raid on the PBOC that suggests the central government may be taking independence away from the central bank.

From here there's significant divergence of opinion on what the PBOC will do with some calling for more cuts to the LPR and others believing the central banks doesn't want to stimulate the property sector.

"We expect a further 45 basis points of cuts to the one-year LPR during 2022," wrote Capital Economics in a note. Meanwhile, economists at Standard Chartered see no further easing.

How the economy develops will largely depend on how omicron hits China. There have been some pings from the new variant in the country but so far no outbreaks. Given its high transmissibility, it will be an immense challenge to contain. How that unfolds will be the most critical factor in how global supply chains, inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term and the global economy perform in Q1. Given the looming Olympics from Feb 4-20, China has much at stake in containing and fighting the variant.

What's interesting is that Chinese stocks didn't exactly cheer the cut, with the Shanghai Composite closing down 1.1%. Some of that is international but the chart isn't pretty with a clear triple top in play.