From Nomura (note dated August 19):
They say "we believe a 50bp RRR cut is still possible in August"
- PBoC has injected liquidity of RMB110bn via the medium-term lending facility to 14 financial institutions
- The tenor and interest rate of the MLF operation is similar to that of the MLF roll-over operation in July
- We believe the injection is to sterilise the tightened liquidity pressure arising from the intervention of the PBoC in the FX market (selling US dollars to defend the RMB) upon the capital outflows after the recent RMB devaluation
The RMB110bn liquidity injection does not change our view that there will be one 50bp bank reserve requirement ratio (RRR) cut in August
- 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
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Bolding is mine. I can't argue with Nomura, makes sense .... Its always a challenge divining the intentions of the PBOC though.