China made no changes to its benchmark rate, surprising many. Questions are being asked as to whether it will end the Reserve Requirement Ratio (RRR) cut cycle in 4Q19, writes Iris Pang – Economist Greater China at ING.
Key Quotes:
We will have a clearer answer from the central bank in 4Q19 as we expect that the PBoC will cut RRR by 0.5 percentage point even if there is a “phase one deal” released in November.
The Chinese economy has suffered from a long trade war (since March 2018), and the cumulative damage has been increasingly obvious when you look at the data. For example, smartphone production was down on a yearly basis in September.
An RRR cut is therefore expected to put downward pressure on interest rates. This will help both the public sector to finance infrastructure projects and the private sector to reduce interest costs.
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