China's Central Bank is Expected to Hold Another Reduction of RRR

Forex News

The People's Bank of China (PBOC) has made three targeted cuts so far this year to bank reserve requirement ratios (RRR) to free up more funds and encourage banks to continue to lend, particularly to smaller firms which are facing strains from the slowing economy. Some analysts suggest, that China’s central bank will cut banks' reserve ratios again within weeks, despite weak economic data and a further escalation in its trade war with the United States.

The Chinese yuan has stabilized versus US dollar, despite ongoing trade tension with the US. So that, another cut in reserve requirement ratios will not bring pressure on the currency. The last cut was announced in late June. Economists expect, that the PBOC will cut RRR again this month or in October.

Another reduction of the RRR would underscore shifting policy priorities in Beijing, from growth target to reduction risks in the financial system. China had already started adjusting fiscal and monetary policy before the US trade frictions flared this spring, as rising borrowing costs and the crackdown on riskier lending weighed on investment and economic activity.