What the next PBOC meeting actually decides
The market is pricing one thing. The data is pricing another. We are about to find out which one Beijing’s policy committee believes.
For most of the last quarter, the consensus narrative on Chinese growth has rested on a comfortable assumption: that the PBOC will cut, and cut soon. Every macro desk has a cut path penciled in for the summer, with USD/CNY downside as the implied trade.
The high-frequency data does not agree. Industrial production has rolled over harder than the year-on-year prints suggest, and credit creation in the household channel has stalled in three consecutive months. If you take these numbers at face value, Beijing should already have eased.
The wrinkle is currency policy. A material rate cut widens the US-China differential at exactly the moment Beijing is trying to keep the yuan inside its informal trading band. Every basis point of easing translates into RMB pressure that the authorities then have to spend reserves to contain.
This is the trade-off the PBOC has spent six months postponing. It can be postponed once more, perhaps twice. After that, the domestic balance sheet damage from holding will exceed the currency damage from cutting, and the policy will tip.
The honest read is that consensus is right on direction but wrong on timing. The first cut comes, but later than the dot plot — and when it does, it will be smaller than the market is currently expecting.