PBoC: No change in monetary stance - Westpac

Frances Cheung, Research Analyst at Westpac, notes that the PBoC unexpectedly cut the RRR by one percentage point for selected banks, effective 25 April and they do not see this as a change in monetary stance.

Key Quotes

“It is a shift of liquidity management between different tools – as a large bulk (RMB900bn) of the liquidity released is to be used to repay MLF, while the remaining RMB400bn is to support small and micro enterprises. A deeper meaning is that the RRR cut is part of the deleveraging process. As shadow banking is suppressed, the need to rely on the formal banking sector should rise. The PBoC helps banks to prepare for that.”

“Nevertheless, markets took it as a dovish signal. As the PBoC action happened just when the market started to feel liquidity turned a bit tight, CNY rates and bonds reacted strongly. Reaction in CNY and CNH has been much more muted and this should remain so unless market starts to worry that China may be easing because of a more pessimistic growth outlook.”