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5 Feb 2015
Expect PBoC to cut RRR further – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura review yesterday’s PBoC decision to inject liquidity in the system, and further forecast the central bank to ease further in Q2 with a 50bp RRR cut and 25bp benchmark interest rate cut.
Key Quotes
“The People’s Bank of China (PBoC) has decided to cut the reserve requirement ratio (RRR) for banks by 50bp, effective 5 February 2015. It has also implemented an additional 50bp cut for city commercial banks and non-county level rural commercial banks to support small and micro enterprises as well as the agriculture sector.”
“It has also cut the RRR by 400bp for the Agriculture Development Bank of China.”
“The cut injects over RMB570bn liquidity into the banking system. This move is in line with our expectations. The cut is mainly reflecting the weaker growth momentum and strong disinflationary pressures.”
“We expect CPI inflation to decline to 0.8% y-o-y in January from 1.5% in December. The cut may also be an indication that the balance of payments was in deficit in January, providing room for an RRR cut.”
“We maintain our view that policy will likely be eased further in Q2, including another 50bp RRR cut and a 25bp benchmark interest rate cut.”
“Despite policy easing, we expect growth to continue to slow because of deep-rooted domestic challenges such as the property market correction, tighter controls over local government debt and deleveraging.”
“We maintain our forecast for GDP growth to slow to 7.1% in Q1 2015 from 7.3% in Q4 2014 and to come in at 6.8% for full-year 2015.”
Key Quotes
“The People’s Bank of China (PBoC) has decided to cut the reserve requirement ratio (RRR) for banks by 50bp, effective 5 February 2015. It has also implemented an additional 50bp cut for city commercial banks and non-county level rural commercial banks to support small and micro enterprises as well as the agriculture sector.”
“It has also cut the RRR by 400bp for the Agriculture Development Bank of China.”
“The cut injects over RMB570bn liquidity into the banking system. This move is in line with our expectations. The cut is mainly reflecting the weaker growth momentum and strong disinflationary pressures.”
“We expect CPI inflation to decline to 0.8% y-o-y in January from 1.5% in December. The cut may also be an indication that the balance of payments was in deficit in January, providing room for an RRR cut.”
“We maintain our view that policy will likely be eased further in Q2, including another 50bp RRR cut and a 25bp benchmark interest rate cut.”
“Despite policy easing, we expect growth to continue to slow because of deep-rooted domestic challenges such as the property market correction, tighter controls over local government debt and deleveraging.”
“We maintain our forecast for GDP growth to slow to 7.1% in Q1 2015 from 7.3% in Q4 2014 and to come in at 6.8% for full-year 2015.”