PBoC steps up monetary easing - Nomura

Analysts at Nomura point out that the People’s Bank of China (PBoC) announced yesterday that it will cut its reserve requirement ratio (RRR) by 100bp for almost all banks, except for county-level rural commercial banks and rural credit unions, effective on 15 October.

Key Quotes

“The medium-term lending facility (MLF) maturing on the same day will not be rolled over. The PBoC estimates that the liquidity injection from the cut will be ~RMB1.2trn (0.7% of outstanding deposits as of August), with RMB450bn as replacement for the maturing MLF and the remaining RMB750bn as net injection.”

“Together with the PBoC’s decision to stand pat on rates after the Fed’s September hike, we believe the RRR cut shows that Beijing is determined to step up policy support to boost market sentiment and bolster economic growth. However, with the rapid escalation of US-China trade conflict and mounting domestic pressures, we believe conventional policies such as RRR cuts may be insufficient to revive both growth and markets, with markets possibly turning pessimistic after only a short knee-jerk positive response.”

“With an expected slowdown in export growth and a declining current account balance, we expect more RRR cuts in the coming quarters.”