The People’s Bank of China (NBK, the country’s Central Bank) is likely to reduce interest rates or the mandatory reserve requirement for banks in the very near future, analysts believe.

A day earlier, the Chinese authorities announced their intention to maintain the stability of financial markets and take measures to stimulate economic growth in the country. This statement was made after the meeting of the Committee on financial stability and development under the State Council of China.

As analysts at CSC Financial Co. note, after similar meetings last year and in 2018, the NBK decided to lower the required reserve ratio (RRR), Bloomberg reports.

Expectations are also rising that the central bank will cut the benchmark one-year lending rate (LPR) on March 21 following its next review.

The LPR became the new benchmark in August 2019; from 2020, the NBK requires banks to focus on it when setting rates on new loans. In December 2021, the one-year LPR was lowered for the first time in 20 months to 3.8% p.a., and in January to 3.7%.

“I expect monetary easing policies to follow, which will spur credit growth,” said Liu Peiqian, China economist at NatWest Group Plc. She called for either a 50-basis-point RRR cut or a 5-basis-point LPR cut in the coming days.

Xing Zhaopeng, senior China analyst at Australia and New Zealand Banking Group, forecast a lower RRR for large banks and possibly a 5 basis point cut in the one-year and five-year LPRs.

On Tuesday, the NBK kept the rate on one-year loans under the medium-term lending facility (MLF) at 2.85% per annum. The MLF is an important lending tool used by the Chinese central bank to provide liquidity to commercial banks, and directly affects its main LPR rate.

Following the meeting of the Committee on Financial Stability and Development under the State Council of the People’s Republic of China, it was stated that it was necessary to take concrete steps to support the economy in the current quarter. And the first step, according to the authorities, should be taken from the side of monetary policy. Monetary policy should actively respond to economic conditions to support the economy, and new lending should help support optimal growth, the meeting participants said.