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2021-07-08

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Is China set to cut RRR soon? What are the implications?

By Kevin Yao BEIJING, July 8 (Reuters) - The Chinese government on Wednesday pledged to use timely c

Is China set to cut RRR soon? What are the implications?

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What are the implications?","url":"https://stock-news.laohu8.com/highlight/detail?id=1100970955","media":"Yahoo Finance","summary":"By Kevin Yao\nBEIJING, July 8 (Reuters) - The Chinese government on Wednesday pledged to use timely c","content":"By Kevin Yao\nBEIJING, July 8 (Reuters) - The Chinese government on Wednesday pledged to use timely cuts in the amount of cash that banks must hold as reserves to support the slowing economy, raising expectations about an imminent move to ease policy.\nSuch reductions in the reserve requirement ratio (RRR) will help underpin the economy, especially small firms, the cabinet said, taking investors by surprise as most had bet on a gradual tightening of policy.\nAll eyes are now on the People's Bank of China (PBOC), which has been gradually scaling back pandemic-driven stimulus to curb debt risks, while maintaining targeted support for small firms.\nAn RRR cut would be the first since April 2020 when the economy was jolted by the COVID-19 pandemic.\nIS AN RRR CUT COMING?\nLikely but not guaranteed.\nThe PBOC usually follows guidance from the cabinet, which oversees the world's second-largest economy and charts the fundamental course of China's policies.\nIn most cases in the past, the PBOC has followed the cabinet's calls for RRR cuts, but not every time. For example, there was no policy move after the cabinet flagged a cut in June 2020.\nGrowth in China's economy is slowing, probably to 7-8% in April-June from a record 18.3% expansion in the first quarter, which was heavily skewed by the recoil effect from the sharp slump in activity in early 2020. The current slowdown could deepen due to rising commodity prices.\nSmall firms in downstream industries could bear the brunt of rising raw material prices, as they struggle to pass on increased costs to consumers.\nWHEN AND IN WHAT FORM?\nNot certain.\nMost analysts expect a targeted RRR cut for small banks, given that the cabinet emphasised the need to support small firms, but a cut for all lenders cannot be ruled out.\nAnalysts at Nomura expect a universal 50-basis point cut in the coming weeks.\nWen Bin, an economist at Mingsheng Bank, expects a cut towards the end of September, if consumer inflation softens in the coming months.\nAn RRR cut could inject permanent funds into the banking system, enabling banks to expand loan books and lower financing costs. Other policy channels such as the medium-term lending facility (MLF) will pump out short- to medium-term funds.\nThe PBOC has used MLF loans more frequently in recent years than RRR cuts.\nExpected RRR cuts will help to ease liquidity pressure caused by the maturing of over 4 trillion yuan ($617.2 billion)in MLF loans and net government bond issuance totalling 4.5 trillion yuan in the second half of this year.\nHOW MUCH ROOM FOR FURTHER CUTS?\nThere is still room but not as big as before.\nThe RRR cut in April 2020 marked the tenth such reduction since early 2018, when the PBOC started an easing cycle, which accelerated significantly from early 2020 after the COVID-19 pandemic paralysed economic activity.\nIn May 2020, the PBOC said the average RRR for Chinese financial institutions had fallen by a total of 520 basis points from early 2018 to 9.4%.\nWILL AN RRR CUT CHANGE POLICY COURSE?\nThe central bank has been trying to cool credit growth to help rein in debt and financial risks, and that fundamental policy may not change.\nChinese leaders have pledged to avoid sharp policy turns as the economic recovery is not yet broad-based and balanced.\nThe PBOC has kept its benchmark lending rate, the loan prime rate (LPR), unchanged for 14 months.\nThe economy is widely expected to grow more than 8% this year, against the government's modest growth target of over 6%, suggesting there is no big pressure to step up easing.\nOn the fiscal front, local governments are likely to speed up bond issuance to channel more funds into key projects, helping to stimulate growth.\nAn expected RRR cut, along with efforts to guide market interest rates lower, will likely be a policy fine-tuning operation to soothe downward pressure on the economy.\nA former central bank official said earlier this week that Beijing should also guide market interest rates lower to support economic growth and ease funding pressures on local governments, ($1 = 6.4808 Chinese yuan renminbi) (Reporting by Kevin Yao Editing by Shri Navaratnam)","source":"yahoofinance_sg","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is China set to cut RRR soon? 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What are the implications?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-08 15:43 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/explainer-china-set-cut-rrr-073327973.html>Yahoo Finance</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nBy Kevin Yao\nBEIJING, July 8 (Reuters) - The Chinese government on Wednesday pledged to use timely cuts in the amount of cash that banks must hold as reserves to support the slowing economy, raising ...\n\n<a href=\"https://finance.yahoo.com/news/explainer-china-set-cut-rrr-073327973.html\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{},"source_url":"https://finance.yahoo.com/news/explainer-china-set-cut-rrr-073327973.html","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1100970955","content_text":"By Kevin Yao\nBEIJING, July 8 (Reuters) - The Chinese government on Wednesday pledged to use timely cuts in the amount of cash that banks must hold as reserves to support the slowing economy, raising expectations about an imminent move to ease policy.\nSuch reductions in the reserve requirement ratio (RRR) will help underpin the economy, especially small firms, the cabinet said, taking investors by surprise as most had bet on a gradual tightening of policy.\nAll eyes are now on the People's Bank of China (PBOC), which has been gradually scaling back pandemic-driven stimulus to curb debt risks, while maintaining targeted support for small firms.\nAn RRR cut would be the first since April 2020 when the economy was jolted by the COVID-19 pandemic.\nIS AN RRR CUT COMING?\nLikely but not guaranteed.\nThe PBOC usually follows guidance from the cabinet, which oversees the world's second-largest economy and charts the fundamental course of China's policies.\nIn most cases in the past, the PBOC has followed the cabinet's calls for RRR cuts, but not every time. For example, there was no policy move after the cabinet flagged a cut in June 2020.\nGrowth in China's economy is slowing, probably to 7-8% in April-June from a record 18.3% expansion in the first quarter, which was heavily skewed by the recoil effect from the sharp slump in activity in early 2020. The current slowdown could deepen due to rising commodity prices.\nSmall firms in downstream industries could bear the brunt of rising raw material prices, as they struggle to pass on increased costs to consumers.\nWHEN AND IN WHAT FORM?\nNot certain.\nMost analysts expect a targeted RRR cut for small banks, given that the cabinet emphasised the need to support small firms, but a cut for all lenders cannot be ruled out.\nAnalysts at Nomura expect a universal 50-basis point cut in the coming weeks.\nWen Bin, an economist at Mingsheng Bank, expects a cut towards the end of September, if consumer inflation softens in the coming months.\nAn RRR cut could inject permanent funds into the banking system, enabling banks to expand loan books and lower financing costs. Other policy channels such as the medium-term lending facility (MLF) will pump out short- to medium-term funds.\nThe PBOC has used MLF loans more frequently in recent years than RRR cuts.\nExpected RRR cuts will help to ease liquidity pressure caused by the maturing of over 4 trillion yuan ($617.2 billion)in MLF loans and net government bond issuance totalling 4.5 trillion yuan in the second half of this year.\nHOW MUCH ROOM FOR FURTHER CUTS?\nThere is still room but not as big as before.\nThe RRR cut in April 2020 marked the tenth such reduction since early 2018, when the PBOC started an easing cycle, which accelerated significantly from early 2020 after the COVID-19 pandemic paralysed economic activity.\nIn May 2020, the PBOC said the average RRR for Chinese financial institutions had fallen by a total of 520 basis points from early 2018 to 9.4%.\nWILL AN RRR CUT CHANGE POLICY COURSE?\nThe central bank has been trying to cool credit growth to help rein in debt and financial risks, and that fundamental policy may not change.\nChinese leaders have pledged to avoid sharp policy turns as the economic recovery is not yet broad-based and balanced.\nThe PBOC has kept its benchmark lending rate, the loan prime rate (LPR), unchanged for 14 months.\nThe economy is widely expected to grow more than 8% this year, against the government's modest growth target of over 6%, suggesting there is no big pressure to step up easing.\nOn the fiscal front, local governments are likely to speed up bond issuance to channel more funds into key projects, helping to stimulate growth.\nAn expected RRR cut, along with efforts to guide market interest rates lower, will likely be a policy fine-tuning operation to soothe downward pressure on the economy.\nA former central bank official said earlier this week that Beijing should also guide market interest rates lower to support economic growth and ease funding pressures on local governments, ($1 = 6.4808 Chinese yuan renminbi) (Reporting by Kevin Yao Editing by Shri Navaratnam)","news_type":1},"isVote":1,"tweetType":1,"viewCount":85,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":3,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}