China: RRR cut signals an easing bias – Standard Chartered

Analysts at Standard Chartered note that the PBoC recently announced that it would cut the reserve requirement ratio (RRR) for large-scale commercial banks, share-holding commercial banks, city commercial banks, non-county rural commercial banks and foreign banks by 1ppt, effective 15 October.  

Key Quotes

“A total of CNY 1.2tn liquidity will be released as a result, of which CNY 450bn will be used to replace medium-term lending facility (MLF) lending maturing on 15 October.”

“The actual liquidity injection will therefore be CNY 750bn. The additional liquidity injection is also intended to offset tax payments later this month, according to the PBoC.”

“The central bank has said the move is intended to replace short-term liquidity with  longer-term liquidity at a lower cost  for banks and encourage banks to support SMEs, the private sector and innovation-related enterprises.”

“We think the move is motivated mainly by the desire to reduce downside growth risk.”

“We do not think the RRR cut represents a major policy shift, but we see an easing bias in the implementation of the monetary policy to complement expansionary fiscal policy.  We expect another 1.5ppt of broad-based RRR cuts in 2019 to prevent a tightening of credit conditions.”