(MENAFN- ING) PBoC cuts RRR
China's central bank, the People's Bank of China, cut its required reserve ratio by 25bp Why does the PBoC need to inject liquidity in the money market during an on-track recovery?
to 10.75%. This
releases yuan liquidity of 500 billion.
The economic data is not as good as expected. Retail sales grew 3.5% year-on-year, year-to-date, which was slower than market expectations. But this was mainly driven by the discontinued subsidies for electric cars. We believe that the RRR cut will
hardly help to boost
However, the cut could help to lower market interest rates, which could help to lower bond issuance interest costs. This may benefit real estate property developers and local government financial vehicles for their funding needs.
Another reason for the cut, which should be a supplementary one, RRR cut should have negligible impact on USD/CNY
could be to provide a cushion against any potential negative impact from global market turmoil. If foreign investors need cash and there are
sudden capital outflows from China,
there is at least some immediate cushion. Surely in such an event, the PBoC would
inject more liquidity into the market.
The CNY exchange rate usually follows the dollar index closely. This is especially true right now
when market players are watching the market very closely.
As such, this RRR cut should not affect the USD/CNY exchange rates to a
large extent. There might
be some softening of the yuan briefly. We keep our forecast of USD/CNY at 6.90 by the end of this quarter
We do not expect the PBoC to cut interest rates or the RRR any further in the first half of this year
unless global market conditions
as the economic recovery is on track.
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more here: https://think.ing.com/about/disclaimer/
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.