PBOC won’t defer rate cuts indefinitely

In its Q2 monetary policy report published earlier this week, the PBOC vowed to make timely adjustments to policy but stopped short of signalling rate cuts. For now, the central bank seems focussed on improving the composition of credit by using structural policy tools to channel credit towards households and key industries. But with inflation likely to fall back faster than both consensus and the PBOC expect, we think China's central bank will turn to broader policy easing before long.