PBoC: Extra RRR expected in the near/medium-term – UOB

The PBoC could ease its monetary conditions further in the next months via a reduction of the reserve requirement ratio (RRR), suggested UOB Group’s Economist Ho Woei Chen, CFA.

Key Quotes

“The PBoC injected net CNY 150bn liquidity via reverse repos and cut 7-day and 14-day reverse repo rates by 10 bps on 3 February. In addition, further cuts to bank’s reserve requirement ratio (RRR) and the loan prime rate (LPR) could be implemented to boost the credit channels. This follows a broad-based 50bps cut to RRR effective 6 Jan 2020.”

“For now, we are still projecting at least one more RRR cut within the next 3-6 months. The 1Y LPR is also on track to edge lower by at least 25bps in 2020, towards 3.90% by end4Q20, from the current rate of 4.15%. There is potential for these reductions in LPR to be frontloaded in 1H20 to mitigate the impact from the 2019-nCov outbreak.”

“As for fiscal policy, the Chinese government has already announced subsidies for prevention and control of the 2019-nCov worth US$6.8bn as of 3 February, and we anticipate more comprehensive and substantial support measures by March depending on how well the spread of the 2019-nCov is contained by then (it is still uncertain if the annual National People’s Congress session will proceed as planned on 5 March 2020).”