Standard Chartered Weigh In On The FX RRR

In the wake of China’s FX RRR cut Standard Chartered note that “the move was widely expected and should provide short-term support to the CNY. It aims to lower onshore USD funding costs, and thus alleviate the pressure arising from a widening USD/CNY interest rate gap, following bolder-than-expected onshore CNY deposit rate cuts.”

• “The 200bps cut will unleash ~USD16bn of USD liquidity. This amount is insignificant by itself from a liquidity and USD rates prospective. But more important is the signalling impact - such counter-cyclical measures never come as singular policies, and the move reaffirmed the PBoC’s decisive stance to curb further weakness of the CNY in the foreseeable future.”
• “Such measures, based on historical experience, have not led to a turnaround of medium-term direction in the CNY.”
• “That suggests these counter-cyclical measures only aim to stabilise the CNY and reduce overly speculative positions, instead of altering the trend of USD/CNY which remains fundamentally driven.”