China Policy outlook, a quieter Q3

Although this move in isolation might not more effective for China, the cumulative impact of the easing since November last year is gradually trickling down to the realeconomy, albeit with a lag. Besides, the fiscal policy is stepping up, off-budget borrowing is relaxed for on-going infrastructure projects and the central government is pressuring local governments to speed up on-budget spending. 
Together with recovering housing sales, the odds of economic growth picking up in Q3 are increasing modestly. Inflation, China both CPI and PPI, is expected to bottom out soon, not least because of base effects.

This move over the weekend might well be the last headline easing before Q4, but the PBoC will still need to inject liquidity from time to time via other tools to cap interbank rates.

"At least one more RRR cut in Q4 is still expected when growth will slow again and liquidity conditions will tighten again partly due to Fed's policy. Two factors, besides a weaker-than-expected growth momentum, could trigger further easing in Q3", says Societe Generale. 

First, impacts of the Fed policy on exchange rates and capital flows could turn out to be stronger. Second, the debt-to-bond swap for local governments could start to push up bond yields across the board.