China’s reform-oriented stance augurs targeted RRR cuts, says ANZ

HONG KONG - ANZ Bank believes China may cut 50 basis points from its reserve requirement ratio (RRR) to release about CNY800 billion of reserve money into the banking system.

"A 50bp cut would also lift the Excess Reserve Ratio (ERR) from 1.7% in February (our estimates) to 2.2%, while a 100bp cut would boost it to 2.7%," ANZ says.

"Either way, a cut will help restore liquidity in the banking sector to levels comparable to that seen end-December 2018.

ANZ says the higher ERR derived from an RRR cut could be associated with a 25bp reduction in weighted average lending rate, according to its calculations.

"This echoes Premier Li Keqiang's commitment, made at the recent National People's Congress (NPC), to reduce funding costs for the private sector.

"We believe the People's Bank of China (PBoC) is not inclined to cut the benchmark lending and deposit rates. It will also keep the 7-day reverse repo rate on hold, unless other major central banks resume a rate-cutting cycle.

"Instead, the PBoC is likely to use multiple tools to influence the actual lending rates that banks are charging their clients."  www.live.anz.com (ATI).