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In the wake of the RRR cut Standard Chartered note that “the PBoC commented that the cut is part of regular monetary operations, and does not represent a change from the prudent monetary policy stance; liquidity released will be used by banks to repay the medium-term lending facility (MLF) maturing on 15 December (CNY950bn) and to replenish their long-term funding. The PBoC pledged to maintain normal monetary policy, keeping policy consistency, stability and sustainability without flooding the market with excessive liquidity. The central bank reiterated that it will keep liquidity reasonably ample and money and total social financing (TSF) growth in line with nominal GDP growth.”

  • “We see the move as a clear signal of policy easing in light of recent downside growth risks. It increases the odds of a 5bp cut in the loan prime rate (LPR) on 20 December as the central bank urges financial institutions to lower financing costs of the real economy. That said, we expect policy rates to stay on hold through 2022.”
  • “Meanwhile, we think the RRR tool will be used more sparingly in the future. Room for further RRR cuts is much smaller now than a few years ago, and we think the authorities will resort to it only in times of sharp growth downturns as a strong signalling tool, rather than using it as a regular means of injecting liquidity. We see further RRR adjustments as dependent on contingencies, and therefore do not forecast broad-based RRR cuts in 2022. The central bank may inject liquidity in a targeted manner by ramping up re-lending to banks, including via the recently introduced decarbonisation-supporting tool, in order to maintain TSF growth at around 10%.”
  • “The Politburo meeting called for stabilising the macro economy and keeping growth in the reasonable range, ahead of the 20th Party Congress in H222. We expect the government to set the growth target at 5% or above for 2022, with macro and structural policies aligned to achieve the target.”