China: Reform-oriented stance augurs targeted RRR cuts - ANZ

ANZ analysts suggest that their scenario analysis suggests that a 50bp cut in the reserve requirement ratio (RRR) of PBoC will release about CNY800bn of reserve money into the system, while a 100bp cut will release about CNY1,600bn.

Key Quotes

“A 50bp cut will also lift the Excess Reserve Ratio (ERR) from 1.7% in February (our estimates) to 2.2%, while a 100bp cut will boost it to 2.7%. Either way, a cut will help restore liquidity in the banking sector to levels comparable to that seen in end-December 2018.”

“The higher ERR derived from a RRR cut could be associated with a 25bp reduction in the weighted average lending rate, according to our calculations. This echoes Premier Li Keqiang’s commitment, made at the recent National People’s Congress (NPC), to reduce funding costs for the private sector.”

“We believe the People’s Bank of China (PBoC) is not inclined to cut the benchmark lending and deposit rates. It will also keep the 7-day reverse repo rate on hold, unless other major central banks resume a rate-cutting cycle. Instead, the PBoC is likely to use multiple tools to influence the actual lending rates that banks are charging their clients.”