PBoC's RRR cuts likely in Q4 2015

Despite a rebound in new loans, the weak growth and PPI deflation still point to the need for an interest rate cut. The tepid PMIs and deteriorating imports point to a further weakening in growth in September. 

PBoC's one benchmark rate cut of 25bp is likely in Q4, with the timing in October-November, says Barclays. The focus in October will be the 19 October release of GDP data. The faster-than-expected slowdown in property and manufacturing investment plus sluggish export growth point to a weakening of GDP growth in Q3. 

"We also continue to look for one to two 50bp RRR cuts in Q4 2015, depending on capital flows", added Barclays. 

Moreover, the expansion of a credit-asset pledged relending program announced on 10 October provides another tool to fine-tune liquidity management by the central bank, especially to facilitate fund injections to small and medium banks, to avoid financial risks, and boost bank lending.