VIEW: Nomura Lower Chances Of Imminent RRR Cut

Nomura note that "the PBoC and Ministry of Industry and Information Technology (MIIT) held a joint press conference yesterday afternoon. Mr. Sun Guofeng, the head of the PBoC's monetary policy department, commented that "the amount of liquidity needed to maintain stable money market interest rates is less than before…and there will be no large liquidity gap and market volatility.""

• "In our view, markets might have, to some degree, interpreted these comments as a signal of less monetary easing, with the 10-Year CGB yield rising from 2.85% to 2.87% immediately after these seemingly "hawkish" comments crossed screens."
• "We think markets might have read too much into Mr. Sun's comments. With a likely worsening economic slowdown in coming months, we believe the PBoC is unlikely to hold a hawkish stance."
• "However, based on the tone and messages from the press conference, we lower the probability of a targeted RRR cut in September-October to 50% from 70% previously, as the PBoC could opt to use some alternative low-profile and more targeted tools for supporting groups such as SMEs e.g. last week the State Council, China's cabinet, announced a CNY300bn PBoC relending quota for SME financing."