China has yet to react to PBoC’s selective RRR cut - Westpac

According to Frances Cheung, Research Analyst at Westpac, onshore China has yet to react to PBoC’s selective RRR cut while the cut covers the majority of banks, the nature is different from an across-the-board easing, and it should be seen as a policy to support the underprivileged sectors, rather than a change in the monetary stance.

Key Quotes

“If there is excessive reaction in the market, i.e. rates moving much lower, the PBoC has the option to tighten liquidity via OMOs.” 

“CNH liquidity appears to be supported during China’s weeklong holidays, as reflected by the downward move in USD/CNH forward points and implied CNH rates. HKMA’s RMB facility was tapped, but the usage does not suggest a severe shortage of funds. That said, the spread between offshore and onshore forward points is likely to stay if there is no influx of extra CNH liquidity.”