The Daily Update - PBoC Cuts RRR Again

For the fourth time this year,  the PBOC cut the required reserve ratio (RRR), this time by 100 basis points, hence releasing funds to help bolster the economy and repay maturing debt. The cut will come into effect on the 15th October. According to the PBoC, the result of the cut will inject nearly USD110bn into the banking system, however, the central bank maintained the move in monetary policy is still prudent and neutral — not accommodative. The RRR for large commercial lenders will be reduced to 14.5% and for smaller banks to 12.5%.

As well as the cut in the RRR, China will further expand domestic demand and adjust its economic structure by implementing a more active fiscal policy, according to an article published by China's Finance Minister Liu Kun in today’s People's Daily newspaper. China will cut tax for companies, use fiscal revenue to support important infrastructure projects, facilitate consumption, and improve people's livelihoods, Liu said. The Ministry of Finance has also decided to aid companies facing problems during the trade war with the U.S. The Chinese government will support these companies by allowing affected employees in certain companies to transfer to other jobs or to receive training, Liu said. He finished by saying the new fiscal policy should be flexible and adapt to actual situations in order to better serve the real economy.

We also had an article published in the Economic Daily, written by a member of the Monetary Policy Committee at the PBOC, Liu Shijin, stating that the yuan exchange rate will rebound once its rate formation system is stabilised, and thus current fluctuations can be ignored. Liu said that fluctuations of the yuan should not be exaggerated, as two-way fluctuations are more obvious and expectations for the depreciation of the yuan have weakened. He went on to say that China's strong fundamentals are capable of keeping the yuan stable and at a reasonable and balanced level.

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