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PBoC to cut reserve requirement ratio in coming days – Goldman Sachs

Goldman Sachs analysts believe that The People’s Bank of China (PBoC) will cut the Reserve Requirement Ratio (RRR) by 25 basis points (bp) in the coming days.

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“We believe that this meeting (Wednesday’s) is the response to increasing downward pressures on growth due to the extension of Covid restrictionsfollowing the increase in local coronavirus case numbers.

“The hint of RRR cuts is consistent with our expectation that policy makers could apply a 25 basis point cut in the RRR before the end of the year to promote economic growth.”

“The debate about cutting bank profits for the benefit of reducing the cost of financing for SMEs implies that policy makers could also consider interest rate cutsalthough, according to this fund, it might not be about broad cuts in interest rates, but rather about a selective reduction of them through an implicit targeting of banks or the reduction of re-lending rates to SMEs.”

The disappointing credit data for October, amid weak credit demand, and the large volume of Medium Term Loan Facility (MLF) maturing in the coming months, could also have contributed to the decision to cut the RRR. We expect the PBoC to carry out the cut of the RRR in the next few days at the hint of the Council of State.”

“Despite these supportive measures, We continue to forecast weak growth in activity for the remainder of the year and the first half of nextbased on our expectation that China will not begin to reopen until the second quarter of 2023.”

Source: Fx Street

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