VIEW: Nomura See Policy Rate Cut In Next Couple Of Months

In the wake of Friday’s RRR cut Nomura noted that “the average RRR for Chinese banks will decline to 8.1%, and we expect another 25bp RRR cut before end-2022, most likely executed before mid-2022 to boost growth in H2. In this regard, we maintain the forecast of a total of 50bp universal RRR cut for 2022. We also expect the PBoC to fully roll over maturing MLF in May (CNY100bn) and June (CNY200bn). After these two universal cuts, the PBoC may cut the RRR for some large banks that remain subject to relatively high RRRs in H2 2022.”

• “Given the rising risk of recession we also expect 10bp rate cuts to the one-year MLF, one-year and five-year LPR, and seven-day reverse repo in either May or June. After that, we expect no further cuts before end-2022.”
• “Regulators stated that they will encourage small and medium-sized banks to lower their deposit rates by 10bp. Although not mandatory, compliance with this policy recommendation will be added to the macro-prudential assessment (MPA). Although this policy suggests there is limited space for rate cuts due to concerns over bank net interest margins, it also means the PBoC has become quite serious in preparing for ~10bp policy rate cuts.”
• “We expect the PBoC to focus on increasing its direct credit support to SMEs, the agricultural sector, green investment, tech and elderly care via channels such as MLF, relending and rediscounting, and some special facilities. Purchasing more FX should be a good way for the PBoC to both inject liquidity and deliver a slightly weaker CNY. The PBoC did buy more FX in March.”