VIEW: J.P.Morgan Remove Call For Q3 RRR Cut

J.P.Morgan note that targeted credit support will "affect monetary policy operations. The PBOC has been using OMO, MLF, RRR cuts and other liquidity facilities to implement its credit policy. To support the targeted monetary policy, we expect the likelihood of universal RRR cuts is low going forward, which would be replaced by targeted RRR cuts, targeted re-lending, OMO and other lending facilities. We can observe such a shift in monetary policy operations since 2Q: (i) use of targeted and differentiated RRR framework; (ii) use of re-lending facilities in response to COVID-19 outbreak, totaling 1.8 trillion in 1H, to support certain sectors; (iii) two special instruments in July, including 40 billion re-lending facility that could support extension of ~3.7 trillion SME loans and another 400 billion of re-lending to help regional banks to issue new inclusive SME loans of ~ 1 trillion yuan. In these operations, the provision of liquidity is on condition of supporting certain sectors, and in some cases an invoicing system after targeted lending has been made. Into August, the PBOC increased the OMO/MLF operations, with net liquidity injection of 830 billion yuan by August 27, of which 680bn via OMO and 150bn via MLF operations. This is the largest monthly net liquidity injection this year, and the magnitude is equivalent to about 40bp RRR cut. Therefore, we remove the 50bp RRR cut in 3Q in our forecast, while maintaining the possibility of some form of targeted RRR cuts or targeted liquidity support (along with OMO and MLF operations) for the rest of the year."