PBoC: Extra RRR cuts remain on the cards – UOB

Considering the recent softer-than-expected PMI prints in China, the PBoC could reduce the RRR further before year-end along with extra fiscal measures by the government, comments Economist at UOB Group Ho Woei Chen, CFA.

Key Takeaways

“Monetary and fiscal policy support will likely be stepped up following the weaker than expected PMIs. We retain our call for another 50 bps cut to banks’ reserve requirement ratio (RRR) before year-end but this is likely to be targeted rather than broad-based. There is more scope to cut the RRR for banks in the first and second tranche which are currently at 10.5-12.0% (base rate 12%) and 6.5-10.0% (base rate 8-10%) respectively.”

“We also see scope for more fiscal support given general government revenue well ahead of expenditure. In Jan-Jul, general government revenue grew 20.0% y/y while expenditure only rose 3.3% y/y. There is also room for the local government to step up infrastructure spending.”