Iris Pang, economist at ING, suggests that we have yet to see any RRR cut from the PBoC, but the central bank can’t wait much longer if it wants to support the economy, which is being squeezed further by the trade and technology war.
Key Quotes
“The Chinese economy will need more liquidity and lower interest rates in 2H19 to support investment in infrastructure projects.”
“We expect two 0.5 percentage point RRR cuts together with 5bp cuts in the benchmark rate in 3Q and 4Q, respectively. The benchmark rate cuts will send a signal to the market that the PBoC is easing, and could help the market to form self-fulfilling easing expectations, which should push down interest rates further.”
“It’s possible that the PBoC won’t cut the RRR as this could result in a large and rigid change in the system’s liquidity, which would be very difficult to reverse. More frequent MLF and TMLF injections could replace RRR cuts instead. But equally, RRR cuts would send a strong message to the market that the central bank is serious about easing. The choice will really depend on the pace of growth in 2H19.”
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