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Head of Research at UOB Group Suan Teck Kin reviewed the recent policy measure by the PBoC.

Key Quotes

“The latest reserve requirement ratio (RRR) is targeted at supporting small and medium enterprises (SMEs) which are lagging in work resumption compared to larger companies. This comes as no surprise because it was flagged at the State Council meeting just days earlier.”

“In terms of liquidity injection, the amount released so far in 2020 is on par with the two rounds of RRR reductions in 2019 which were in response to the impact from the US-China trade tensions.”

“With the COVID-19 outbreak continuing to flare up outside of mainland China and with negative consequences on the demand side, we see scope for PBoC to take on another one to two rounds of RRR cut in the next 3-6 months, along with the gradual decline in its benchmark 1Y loan prime rate (LPR).”

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