PBoC likely to adopt another 50bps rate cut before year-end: ANZ Research

The People’s Bank of China (PBoC) is expected to adopt another 50bp RRR cut before year end; however, the room for rate cut remains limited, according to the latest report from ANZ Research.

The People’s Bank of China (PBoC) has cut the reserve requirement ratio (RRR) for major banks by 50bps, effective 6 January. The move will release CNY800bn of longterm liquidity to meet part of the seasonal spike in demand for cash ahead of the Lunar New Year holidays (which fall in H2 January this year) as well as lend support to the real economy.

A broad-based RRR cut does not mean that the PBoC has changed its targeted approach in the new year, but should be viewed as a gesture of goodwill. All banks are eager for long-term funds because of new regulations on the liquidity matching ratio, effective from this month.

According to the Monetary Policy Committee’s Q4 statement, the PBoC will adopt a balanced but flexible strategy between growth stabilisation and risk prevention in 2020. Recent leading indicators, eg PMIs, have signalled a slow expansion in domestic activity, driven by the fiscal stimulus program.

"Looking ahead, we expect the PBoC to maintain ample liquidity in cooperation with the government’s fiscal policies, to avoid excessive fluctuations in growth expectation," the report further commented.