MNI BRIEF: RRR Trim A Better Option Than Rate Cut Now: BOC

The accelerating issuance of government bonds and funding demand for infrastructure and industry in H2 will increase liquidity needs and push the PBOC to add open market operations and cut reserve requirement ratio, the Research Institute at the Bank of China in its Q3 Economic and Financial Outlook said on Wednesday.

Policy rate reduction is still an option to underpin inflation, but the record-low interest margin of lenders has restrained their capacity to expand credit and, to some extent, has destabilize their operations, the report said, noting that the fast drop in interest rates has triggered arbitrage that some companies borrow cheap funds to buy wealth management products or relend to other companies with higher interest rates, highlighting that an RRR cut is a better choice now than loering interest rates.(see:MNI: Chances Rise PBOC Cuts RRR As Gov Debt Issuance Increases)

It estimated the People’s Bank of China would continue to guild the deposit rate lower, and predicted China’s GDP would grow at a rate of 5.1%y/y in Q2 and 5.2% for the whole year.