The PBoC is getting better and better at seizing the right timing for monetary policy easing. This move is clearly responding to the still weak growth data released earlier. Modest inflationary pressures, as indicated by another negative GDP deflator in Q3 and falling inflation reading in September, offers the PBoC more room to ease. 

Most importantly, the Fed's hesitation to hike rates has eased some capital outflows pressure on EM, including China. There is no better timing for the PBoC's rate cut.The PBoC cut policy rates by 25bps, lowering the one-year benchmark deposit rate to 1.5% and the one-year lending rate to 4.35%. Both are all-time lows, but neither is binding for banks anymore.

Moreover, it cuts the RRR for the whole banking sector by 50bps, with an extra 50bps for qualified banks that have loan profiles showing support to small enterprises as well as the agricultural sector. The estimated liquidity injection from RRR cuts is likely to exceed RMB700bn. 

"This is more than enough to offset the September decline in official reserves, if the PBoC's balance sheet figure is only considered. However, if the decline in all banks' FX positions is considered, in case banks have intervened on behalf of the PBoC, this RRR cut may still fall short", says Societe Generale.

As for the RMB, the current environment is more friendly than a month ago, thanks to the Fed's dovishness. However, the depreciation is not yet over. China will need to lower interest rates for years to come as its economy slows further. 

"The RMB's peg to the USD will have to go probably sooner rather than later. The most likely scenario to be that the PBoC will allow gradual adjustment towards the fair value (weaker) over 2016, which means more depreciation", added Societe Generale.

Easing is well expected, and it does not make any difference to our growth expectation. Fiscal easing and infrastructure funding have picked up, which is more effective than the PBoC's easing in supporting short-term growth.