GI Research Market Commentary
People's Bank of China cuts RRR by 50 bps
•
•
Today, China’s central bank cut its RRR by 50 bps
Looking forward, we expect another three cuts in the RRR and two cuts in the benchmark
interest rate during this year.
The People’s Bank of China today cut its reserve requirement ratio (RRR) by 50 bps for all banks. This takes
the ratio for big banks to now 17%, a cut of in total 300 bps since the beginning of the current easing cycle at
the start of last year. The cut will be effective already by tomorrow.
The move continues the monetary help from the PBoC in the current downturn of the Chinese economy.
PBoC Governor Zhou Xiaochuan had as recently as last week confirmed that the central bank had the room
and tools in its monetary policy to deal with the current downside risks. However, latest support measures
were more on the side of open markets operations (OMOs) which was widely interpreted as a shift in the
direction of monetary policy in order not to provide too much liquidity for capital outflows. However, to be
effective the liquidity support had to be made permanent at one point in time.
Moreover, the BPoC had given a strong signal of its willingness to support the economy by letting new yuan
loans rise very strongly in January. Although, new loans typically jump up at the beginning of each year, it
came in more than 70% higher than in January 2015. The move also comes ahead of the Economic Work
Conference which likely starts on March 5, and typically announces the year’s targets for the economy.
Looking forward, as we expect a total 200 bps cuts in the RRR this year, we see more moves of the PBoC
ahead. We also forecast two cuts in the benchmark interest rates by 25 bps in the first half of this year.
However, we see the RRR as dominant tool as the interest rate is already on record low levels at currently
4.35%