China: PBoC cut the RRR by 25 bps – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest PBoC meeting.

Key Takeaways

“The People’s Bank of China (PBoC) announced on Fri (15 Apr) that it will lower banks’ reserve requirement ratio (RRR) by 25 bps, effective from 25 Apr.”

“The quantum of RRR cut is much smaller than previous rounds which would typically be 50 to 100 bps. Furthermore, the PBoC left its 1-year medium-term lending facility (MLF) rate unchanged at 2.85% on Fri (15 Apr), against market’s and our expectation of a 10 bps cut to 2.75%.”

“First, this could imply that the PBoC is running into constraint to use the RRR as a monetary policy tool after successive reductions over the years.”

“Second, the overall impression is that the central bank has little appetite for aggressive monetary policy easing. While the PBoC wanted to boost market confidence, it is also aware that the impact of its policy easing may be limited by weak credit demand. As such, policymakers may find it more useful to use measures to address demand side weakness by easing COVID-19 curbs and boost consumption demand.”

“Third, as the RRR is reduced by a smaller than expected quantum and will only take effect from 25 Apr, the immediate impact on lowering banks’ funding cost will be limited. Thus, the 1Y LPR and 5Y LPR are likely to be unchanged at 3.70% and 4.60% respectively at the fixing this month on 20 Apr.”

“We see more pressure for the PBoC to ease its monetary policy further in the upcoming months, likely by direct cuts to the 1Y MLF rate to bring down the LPR and via its relending tool. We maintain our forecast for the benchmark 1Y LPR to fall to 3.55% but see a longer time frame for the easing by the end of 3Q22 instead of 2Q22.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content

Recommended content

Editors’ Picks

EUR/USD clings to daily gains above 1.0650

EUR/USD clings to daily gains above 1.0650

EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.


GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.


Gold holds steady at around $2,380 following earlier spike

Gold holds steady at around $2,380 following earlier spike

Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.

Gold News

Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium

Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in

Bitcoin price shows no signs of directional bias while it holds above  $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research. 

Read more

Week ahead – US GDP and BoJ decision on top of next week’s agenda

Week ahead – US GDP and BoJ decision on top of next week’s agenda

US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.

Read more