PBOC to cut RRR in coming days – Goldman Sachs

Analysts at Goldman Sachs believe that the People’s Bank of China (PBOC) will slash the Reserve Requirement Ratio (RRR) by 25 basis points (bps) in the coming days.

Key quotes

"view this (Wednesday's State Council) meeting as the response to increased growth downward pressures due to widened Covid curbs on the back of the rising local COVID case numbers."

"The hint of RRR cuts is consistent with our expectation that policymakers could deliver a 25bps RRR cut before year-end to promote economic growth."

"The discussion of banks cutting profits for the benefit of lowering funding cost of SMEs implies policymakers might consider interest rate cuts as well, though according to this statement, it might not be broad interest rate cuts but rather targeted interest rate reduction through implicit guidance on banks or lowering SME re-lending rates."

"The disappointing October credit data amid sluggish credit demand and a large amount of maturing Medium-term Lending Facility (MLF) in the next few months might have also contributed to the decision of RRR cut. We expect PBOC to deliver the RRR cut in the next few days after the State Council's hint."

"Despite these supportive measures, we continue to forecast weak activity growth in the rest of the year and the first half of next year, based on our expectation that China would only begin to reopen in Q2 2023."