Goldman On The RRR Cut

Goldman Sachs write “the 50bp RRR cut can help boost sentiment, provide more liquidity in the interbank market and support credit extension. It is also the first time that the PBOC has cut SME and agriculture sector relending and rediscount interest rates since December 2021.”

• “On the back of declining interest rates in recent years, this cut can further incentivize commercial banks to utilize SME and agriculture relending/rediscount quotas to facilitate overall credit extension and help with activity growth.”
• “Besides the announced 50bp RRR cut, we continue to expect the PBOC to cut policy rates (7-day OMO and 1-year MLF) in Q1 and Q3 (by 10bp each), and to cut RRR in Q2 and Q4 (by 25bp each) to facilitate overall economic growth. This implies modestly more high-profile monetary easing than our previous baseline. Moreover, PBOC may also inject long-term liquidity into the banking system via various lending facilities, such as MLF, PSL, relending and rediscounting.”