VIEW: ANZ: How Much More Room For A RRR Cut?

ANZ note that "although the weighted average reserve requirement ratio (RRR) for financial institutions stands at 8.9% compared with banks that are subject to a lowest RRR of 5%, the actual room for further cuts is not as large as it seems."

• "The reason is that the People's Bank of China (PBoC) has to maintain the hierarchy of different banks according to its "three tranches and two premiums" RRR framework, to encourage their compliance with the credit guidance. The "two premiums" refer to incentives which requires a gap of 250bps."
• "As a result, the weighted average RRR can be trimmed to 7.5% at the most. This means the room for further RRR cuts is less than 150bps. We expect the PBoC to adopt a measured approach and made targeted cuts of 50bps in Q4 2021 and Q1 2022, respectively. The monetary policy framework will be reviewed before 2023."