PBOC Likely to Postpone RRR Cut After Recent Liquidity Injection
China’s central bank is expected to delay a reserve requirement ratio cut after injecting significant liquidity into the market.
China, PBOC, Liquidity, RRR Cut, Donald Trump, Economy
Beijing: So, the People’s Bank of China just pumped a whopping 1.7 trillion yuan into the market. They did this without the usual big stimulus announcements. It seems they’re trying to keep their options open, especially with Donald Trump coming back into the picture.
They had hinted at possibly cutting the reserve requirement ratio (RRR) again by the end of 2024. But now, it looks like they might hold off until early this year. This is all about keeping things steady, especially with those pesky US tariffs looming.
Last month’s cash injection was a big deal. It was more than what they usually do with their medium-term lending facility, which is kind of going out of style. This move helped balance out a major liquidity withdrawal, almost like they were making up for a 25-basis-point RRR cut.
Analysts think the RRR cut is being saved for when the US raises tariffs again. They’re eyeing a potential window before the Lunar New Year, which kicks off on January 28.
China’s economy is showing some signs of life after a bunch of stimulus measures were rolled out since late September. But the growth outlook is still a bit shaky, especially with the threat of a new trade war with the US. Leaders are hinting at a more supportive approach to liquidity in 2025 to keep banks lending.
Now, the PBOC is being cautious about cutting reserves. They want to keep the yuan stable and avoid another surge in government bond prices. If they cut the RRR too much, it could weaken the yuan and lead to capital flight.
But if the Federal Reserve takes a softer stance in January, China might have more room to maneuver with the RRR cut before the Lunar New Year.
They’re also not thrilled about the bond market rally, which has seen yields drop to historic lows. Too much liquidity could push investors into bonds, which isn’t what they want right now.
As the first quarter wraps up, liquidity tends to tighten, so that might be when they finally decide to cut the RRR. China’s top policymakers are shifting to a “moderately loose” monetary policy for 2025, moving away from the cautious approach they’ve had for years.
Experts are saying that to really boost demand in 2025, the PBOC will need to take significant action, including possibly expanding its balance sheet and even buying equities outright.