The ATF China Bond 50 Index rose 0.02% on Wednesday.

The ATF indices posted a mixed performance on Wednesday amid reports that the People’s Bank of China (PBoC) will lower the re-lending and re-discount interest rates, in a signal that policy makers will maintain their easing stance.

The ATF China Bond 50, the ATF ALLINDEX Financial and Local Governments gained 0.02%, 0.01% and 0.01% respectively, while the ATF ALLINDEX Enterprise closed flat at 102.05. The ATF ALLINDEX Corporates retreated 0.08%.

The Chinese central bank announced a 25bps cut on the interest rate on re-lending designated for agricultural entities and SMEs, to 2.25% per annum (for the one-year tenor), according to a research note from Nomura, citing Xinhua News. The interest rate on re-lending designated to maintain financial stability was cut by 50bps to 1.75%, and the re-discounting interest rate dropped 25bps to 2%, it said.

However, the Japanese bank indicated that the impact of the cuts could be limited unless the PB0C significantly increases the size of new re-lending and re-discounting loans. The outstanding amount is relatively small, standing at 3.5 trillion yuan ($49 bn).

Spikes in interbank rates and government bond yields in recent weeks have signalled great concern among investors about China possibly reversing its easing stance. 

However, Beijing still cannot afford to tighten policy, Nomura stated, despite indications of stronger economic momentum than expected. The latest Caixin manufacturing PMI came in above market expectations at 51.2 for June, up from 50.7 in May. This echoes Monday’s surprise Purchasing Managers Index (PMI) figures, which also beat forecasts, as reported.

“The short-term sequential momentum is good and that’s why we raised Q2 GDP growth to 2.6% year-on-year, but sequential growth recovery will likely slow in H2 and we expect just 4.3% year-on-year in Q3 and 4.5% year-on-year in Q4,” Ting Lu, Nomura’s Chief China Economist, stated in the research note.

The ALLINDEX Corporates Index fell 0.08%.

The ALLINDEX Enterprise Index was unchanged.

The ALLINDEX Financials Index advanced 0.01%.

The ALLINDEX Local Government Index climbed 0.01%.

This report appeared initially on Asia Times Financial.