China: PBoC retains flexibility for its next move after RRR cut – ANZ

Zhaopeng Xing, analyst at ANZ, suggests that the PBoC’s RRR cut will be sufficient to mitigate the liquidity gap in January, considering banks’ high excess reserves at end of 2019, in their view.

Key Quotes

“One reason for the broad-based RRR cut is the new regulation on the liquidity matching ratio, effective from this month. It will restrict banks from “borrowing short and lending long”, so long-term funds have become vital.”

“We see the CGB curve flattening in the near term, owing to a seasonal supply shortage before the National People’s Congress in March.”

“Looking ahead, the PBoC will adopt a balanced but flexible strategy between growth stabilisation and risk prevention in 2020. We see the chance for another 50bp RRR cut before year-end.”