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PBOC to Increase Countercyclical Adjustments.

CHINA


  • The People’s Bank of China will increase countercyclical adjustments with room to lower the reserve requirement ratio, though further interest-rate cuts will prove difficult, Zou Lan, head of the Monetary Policy Department at the PBOC, told reporters on Thursday.
  • The current average reserve requirement for financial institutions is about 7%, leaving room for downward adjustments, Zou said. Monetary easing would require observation of economic trends, he noted, adding that the 50 basis point RRR cut at the beginning of the year is still affecting the economy (Source: MNI Beijing).
  • The rallying bond market has been a source of concern for regulators. With banks a being a large holder of China Government Bonds, adjusting capital requirements could have major influence over the direction of bond markets for the remainder of the year, more so than global forces emanating from the Federal Reserve.
  • Bonds have continued their strong performance. This week alone saw the interest rate sensitive 2-year touching 1.467% this morning, 7bps lower in yield on the week and the growth sensitive 10-year approaching 2.148%, 5 bps lower in yield.
  • Today China will sell CNY65bn 182-Day Bills, CNY60bn 2054 Bonds and CNY45bn 91-Day Bills.
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