FXStreet (Bali) – According to Asia Economics Team at Nomura, Wednesday’s PBOC RMB110bn liquidity injection does not change the bank’s core view that there will be one 50bp bank reserve requirement ratio (RRR) cut in August.
Key Quotes
“First, the size of this MLF operation is much smaller than the liquidity injection (about RMB650bn) of a 50bp RRR cut. Second, the effect of the MLF operation is more temporary and weaker with the PBoC having discretion to roll over after six months, while in contrast, the RRR cut is more permanent and therefore sends stronger signal of policy easing.”
“Under the current economic and financial conditions, we believe the RRR cut is required as it would be more effective in coping with the current weak growth momentum (although it has improved somewhat sequentially in Q2).”
“Moreover, capital outflows may continue over the course of RMB depreciation in H2. As such, we believe a 50bp RRR cut is still possible in August.
(Market News Provided by FXstreet)