The Sino-US statements have sparked expectations for the US Fed to delay an interest rate cut. Is the LPR cut in May no longer urgent? Industry insiders: It is highly likely to land as expected.

On May 7, leaders from the People's Bank of China, the National Financial Regulatory Administration, and the China Securities Regulatory Commission announced a "package of financial policies to stabilize the market and expectations."

Shortly thereafter, from May 10 to 11, senior delegations from China and the US issued a joint statement in Geneva, agreeing to significantly suspend or reduce tariff hikes. This move exceeded external expectations. While global capital markets returned to early-April levels amid positive news, the market also began to focus on whether countries would adjust their macro policy timelines accordingly.

On May 13, a researcher from a foreign investment bank in Hong Kong told Caixin that some US Fed officials were optimistic about the economy following the easing of the Sino-US tariff war, believing that the timing for an interest rate cut could be delayed further. The market also began to focus on whether there would be changes in China's policy timeline, or at least whether there would be a possibility of a slowdown before the next round of negotiations.

Caixin reporters noted that, regarding this issue, the mainstream view among mainland institutions is that the policies announced by the three ministries on May 7 are strategic moves to implement the decisions of the April Political Bureau meeting, rather than temporary measures in response to the tariff war. Therefore, it is highly likely that this round of financial policies will be gradually implemented, including the upcoming adjustment window for the May LPR next week.

However, for the next round of policies, it is necessary to "wait and see." A chief analyst from a major securities firm admitted that the new US administration has been "playing by its own rules" and "setting the tone" since taking office.

Will the urgency for policy implementation decline as economic expectations improve?

Following the joint statement by the two countries on May 12, multiple institutions expressed cautious optimism about China's exports and economic growth.

Huatai Securities' latest report suggests that, during the 90-day exemption period for reciprocal tariffs, US tariffs on China will drop to around 40%, and global tariffs will fall to 15-17%. If tariffs related to fentanyl are reduced, tariffs on China could potentially drop to 12.2%-14.7%.

Huatai believes that the cooling of the US-China tariff war has driven strong overall performance in China's exports since November last year, driven by "front-loading" of exports. Considering the uncertainty of reciprocal tariffs after the 90-day "exemption period," "front-loading" is expected to continue within the 90-day window.

Not only has the probability of a US recession decreased, but in the short term, the demand for front-loading exports and capacity going global is expected to boost China's exports, and the market is also expected to raise its growth expectations for China in 2025.

Guo Lei, chief economist at GF Securities, believes that progress in economic and trade talks will logically lead to upward revisions in nominal growth expectations, downward revisions in narrow liquidity expectations, and an increase in risk appetite, thereby driving interest rates to rise to a certain extent.

Regarding interest rate cuts, Pan Gongsheng, the governor of the People's Bank of China (PBOC), stated on May 7 that the policy interest rate would be lowered by 0.1 percentage point, meaning the 7-day reverse repo operation rate in the open market would be adjusted from the current 1.5% to 1.4%. This is expected to drive the Loan Prime Rate (LPR) to decline by approximately 0.1 percentage point in tandem.

The opportunity for LPR adjustment is approaching on May 20.

On May 13, macro and banking researchers from multiple institutions expressed to Caixin that more than half of the PBOC's 10 policies have been implemented. Considering that the reverse repo rate has already been adjusted, it is highly probable that the LPR in May will follow suit and be lowered.

Will the pace or direction of adjustments be slightly modified, or was the policy announced on May 7 just the beginning?

Regarding China's policy direction, Guo Lei believes that this round of expanding domestic demand is not a temporary measure but a strategic move. The policy directions outlined at the end-April Political Bureau meeting should continue to be implemented.

Guo Lei also believes that, of course, the resilience of April's export data and the progress made in the recent China-US economic and trade talks may provide a more ample time window for policy adjustments. The pace of policy implementation may be fine-tuned based on economic conditions.

On May 7, the PBOC announced a package of 10 financial policies across three categories: quantitative, pricing, and structural, including RRR cuts, interest rate cuts, and structural tools. On the same day, the National Financial Regulatory Administration also announced eight incremental policies, including optimizing real estate financing and expanding the investment scope of insurance funds.

On May 13, a banking analyst from a large securities firm in Shanghai told Caixin that the implementation of some policies in this round, such as re-lending and the optimization and creation of policy tools, is expected to take a certain amount of time. If adjustments are needed in response to the latest situation, there is likely to be more flexibility in adjusting the pace of these policies.

In a report released on May 13, the China Merchants Bank Research Institute believed that the positive changes in China-US tariffs exceeded expectations, which would significantly mitigate the impact on bilateral trade between China and the US. However, industries with high dependence on and large export volumes to the US may still face significant impacts on production investment and profit recovery, affecting employment and residents' income in these sectors. Targeted corporate support measures are still needed.

Regarding the next steps in policy, Zhang Jingjing, the chief macroeconomist at China Merchants Securities, holds a more positive view. In her opinion, China is currently in a low-inflation environment, with the core CPI approximately 2 percentage points lower than before. The changes in the price environment provide room for further monetary policy easing.

The recently released PBOC monetary policy implementation report pointed out that "with the implementation and effectiveness of policies to expand domestic demand, market demand will accelerate its release, better supporting a mild rebound in price levels." Zhang Jingjing judged that during the property market downturn, expanding and implementing domestic demand policies remain the primary driving force behind supporting the rebound in price levels.

Therefore, the monetary authority still maintains a strategy of "responding calmly" to changes in the domestic and overseas economic situation. If the impact of tariffs gradually becomes apparent in May and June, it is expected that more counter-cyclical policies will be introduced to "stabilize the market and expectations". Therefore, the easing policy on May 7th is just the beginning, not the end.