Goldman Sachs: Expect RRR Cut In Coming Days

In lieu of Wednesday’s State Council meeting Goldman Sachs “view this 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 yearend 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 relending rates.”
• “The disappointing October credit data amid sluggish credit demand, and the 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.”