This is interesting from ING on China:
- The IMF has commented that China has room for looser monetary and fiscal policy based on low inflation in China. In the past, Chinese policymakers have usually taken into account IMF comments on monetary policy.
- Following these comments, we see a higher chance of liquidity injections via open market operations and monthly MLF operations. Even a RRR cut is possible.
- A cut in the policy interest rate (7D reverse repo and 1Y MLF) is less likely than liquidity management tools as the PBoC has previously stated that it would not let interest rates go too low or rise too fast.
- We expect that looser liquidity should be more obvious in 2H23 when the external sectors start to affect the domestic economy.
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The next MLF will be on Monday 15 May, while the interest rate setting for the Loan Prime Rates will follow on the 22nd. RRR adjustments can drop at any time.
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If you need a refresher on the RRR:
- the "Required Reserve Ratio"
- which is the proportion of deposits that banks are required to hold as reserves with the central bank, the People's Bank of China
- The RRR is a tool used by the PBOC to manage the money supply in the economy, and is one of the main instruments of monetary policy in China. By adjusting the RRR, the PBOC can either increase or decrease the amount of money that banks have available for lending and investment, which can have a significant impact on economic growth, inflation, and other macroeconomic indicators.
