A report from one of China’s leading state-owned financial news providers points to the likelihood of another cut to the required reserve ratio (RRR) in the second quarter to help prop up the economy in the wake of the COVID-19 outbreak.
Li Zhao (李湛), chief economist with Zhongshan Securities, said to Securities Daily that he anticipates two or three more RRR cuts in 2020, for a total reduction of between 1.0 to 1.5 percentage points.
“This year there is also room for a reduction in the MLF rate of 30 basis points, which will guide ongoing declines in LPR quotes, , and push even larger-scale declines in the enterprise lending rate,” Li said.
Wang Qing (王青), chief economist with Golden Credit Rating, said that the Chinese central bank is likely to implement a one-time comprehensive RRR cut in the second quarter, and that MLF rates could also fall by 10 basis points.
Wang also points out however that at present open market rates are quite low, indicating that liquidity in the Chinese banking sector remains at comparatively high levels.
On 23 March the People’s Bank of China (PBOC) announced that overall liquidity in the Chinese banking system remained at “rationally ample” levels, and that it would not be undertaking any reverse repo operations.
The decision means that PBOC has refrained from reverse repo operations for a total of 25 consecutive working days since 18 February.
PBOC’s last RRR reduction was on 16 March, providing banks that satisfy assessment standards with a targeted cut of 0.5 to one percentage points, and qualified joint-stock banks an additional targeted reduction of one percentage point to support the issuance of financial inclusion loans.
PBOC said that the move would unleash around 550 billion yuan in long-term funds, which will “support the growth of the real economy and reduce the real cost of social financing.”