PBoC: Why might a RRR cut might be in the pipeline? – Nomura

Analysts at Nomura suggest that the Chinese banks are under government pressure to ramp up lending, while other factors such as the maturing medium-term lending facility (MLF) and tax season effects could stretch liquidity conditions over the next couple of months.

Key Quotes

“We estimate that, if there is no further support from monetary easing/stimulus measures, the liquidity gap before end-October should be around RMB1100bn (0.6% of outstanding deposit as of July).”

“We expect the PBoC to inject more liquidity via either the MLF or a RRR cut.”

“Compared with a liquidity injection via the MLF, the likelihood of a RRR cut (more likely at 50bp) is increasing as Beijing may need a RRR cut to boost market sentiment.”