FW: RHB FIC Rates & FX View - "Earlier-than-expected Liquidity Relief from PBoC RRR Reduction" - 27/4/18

 

 

Rates & FX View

 

 

Earlier-than-expected Liquidity Relief from PBoC RRR Reduction

 

Key Highlights

Highlights

¨      On 17^th April 2018, PBoC announced a 1 percentage point cut in the Reserve Requirement Ratio (RRR) for qualified banks, effective 25 April 2018. The cut appears broad-based with most banks benefitting from the move, ranging from large commercial banks to rural banks to foreign institutions. While banks would have to repay the Medium-term Lending Facility Loans (MLF) extended to them, it offers a more stable source of funding as they do not have to worry about rolling over those short-term loans. Also, the central bank also estimated that net of MLF repayments, approximately CNY400bn of funds will be made available. We have previously observed that authorities conducted less meaningful tightening over 1Q18 than initially expected amid the Lunar New Year holidays and the March NPC meeting. While we doubt China will reverse its neutral / mild tightening bias over the coming months as authorities remain committed to rein in credit creation, we also do not think conditions will turn materially looser into 2H18. Overall we believe that the bank aims at exhibiting policy flexibility and being responsive in order to mitigate risks arising from a fast changing environment. We eye another 50-100bps cut at least to the RRR over the remainder of 2018.