PBOC slashes RRR by 50 bps, effective from July 15, AUD/USD recaptures 0.7450

Dhwani Mehta FXStreet

In an unexpected move, the People’s Bank of China (PBOC) cut the Reserve Ratio Requirement (RRR) for banks by 50 bps with effect from July 15.

Additional takeaways

Will maintain a prudent monetary policy.

Will keep liquidity reasonably stable.

Weighted average RRR for all financial institutions at 8.9% after the new cut.

The new RRR cut is a normal operation after the monetary policy has returned to normal.

Some liquidity released by the new RRR cut will be used to repay maturing MLF for financial institutions.

Interbank liquidity volume will be basically stable after the RRR cut.

The new RRR cut will release long-term liquidity of about 1 trillion yuan.

The new RRR cut will not apply to financial institutions with existing RRR of 5%.

Will not resort to flood-like stimulus.

This announcement confirmed the latest rate cut chatters that were doing the rounds for a week. Also, it's worth noting that this is the first RRR cut since April 2020.

Market reaction

The PBOC rate cut announcement offered an extra lifeline to the AUD bulls, as AUD/USD ticked a few pips higher and recaptured the 0.7450 barrier.

The spot was last seen trading at 0.7447, up 0.22% on the day, benefiting from the recovery in the risk sentiment.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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