China's decision to lower the reserve requirement ratio (RRR) for some county-level rural commercial banks late Wednesday has led investors to question whether broader monetary stimulus is in the offing.
Following the release of softer-than-expected March activity data, the State Council announced that it was cutting the amount of cash that village commercial lenders must hold as reserves in an effort to increase financial support for the agricultural sector. It did not specify when or by how much the RRR would be cut, saying only that an appropriate reduction would be made for qualifying banks.
"We don't expect the amount of liquidity released to be significant for the economy. Nonetheless, this is another loosening signal from the government, which suggests it is probably more concerned about the economic outlook," Zhiwei Zhang, chief China economist at Nomura wrote in a note.
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