China: RRR Cut Tomorrow

Published on April 14, 2022
SGH Insight
China will cut its Reserve Requirement Ratio tomorrow, as we have been anticipating and is increasingly expected by markets.

At a State Council Executive Meeting on April 13, local time, Premier Li Keqiang decided “to give greater weight to lower[ing] the provision coverage ratio of large-sized banks with high provisioning levels in an orderly manner and to cut banks’ reserve requirement ratio in a timely way in order to boost financial services for the real economy, especially for micro, small, and medium-sized enterprises (MSMEs).”
Market Validation
Bloomberg 4/15/22

The Chinese central bank cuts reserve
requirement ratio by 0.25 percentage point for all banks and
additional 0.25 percentage point for some banks, according to a
statement from PBOC.
* The RRR cut will release 530b yuan of liquidity

China will cut its Reserve Requirement Ratio tomorrow, as we have been anticipating and is increasingly expected by markets.

At a State Council Executive Meeting on April 13, local time, Premier Li Keqiang decided “to give greater weight to lower[ing] the provision coverage ratio of large-sized banks with high provisioning levels in an orderly manner and to cut banks’ reserve requirement ratio in a timely way in order to boost financial services for the real economy, especially for micro, small, and medium-sized enterprises (MSMEs).”

China’s State Council has put great emphasis on economic development amid the spread of Covid-19 in Shanghai and the Ukraine crisis.  With Beijing braced for a protracted war in Ukraine (see SGH 4/12/22, “China: Challenges to Q2 Growth”), Li stressed on Wednesday the need to stay alert, to be prepared for dealing with “shifting realities” for a long time to come, and to redouble efforts in pursuing economic and social development. He then called for “targeted and robust” policies, with an emphasis on supporting the MSMEs that are most acutely affected by both the Covid lockdowns and Ukraine war.

Prior to the State Council meeting, Premier Li had gone on an inspection trip to Jiangxi province on Monday and Tuesday and presided over a symposium on the economic situation in Nanchang.

Governors from five provinces attended that symposium, both online and in person, and all five governors acknowledged that economic growth has been losing momentum since late March, requiring “a timely increase in the strength of policy support.”

At least three of the five governors noted that many MSMEs have faced cash strains and difficulties in production and operation since late March, and they expressed a hope that the State Council can speed up the introduction of financial support measures, including a lowering of the RRR rate and/or loan interest rates, to alleviate the cash shortages of the MSMEs.

With April expected, and hoped, to be the worst performing month of the year, officials in Beijing agree that this is the time to ease monetary policy.

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