20230915-招银国际-China_Policy__RRR_cut_as_continuous_effort_to_restore_confidence_6页_865kb

CMB Report Summary: September 15, 2023 RRR Cut Analysis

Key Points

• RRR Cut Event: The People's Bank of China reduced the reserve requirement ratio (RRR) by 25 basis points, decreasing the effective weighted average RRR from 7.6% to 7.4%, potentially increasing banking system liquidity by over RMB500 billion.

• Policy Motivation: This move reflects continuous efforts by Chinese policymakers to boost market confidence and growth momentum, following failed previous policy attempts to ignite investor sentiment. It signals a shift toward a more active, pro-growth stance amid extreme pessimism about the economy.

• Expected Future Policies: Additional easing measures are anticipated, such as loosening property policies (including urban village renovations and home purchase restrictions), expanding credit supply (further RRR cuts, deposit rate and LPR reductions), resolving local government debt risks, accelerating government bond issuance, stimulating retail consumption, supporting specific industries like digital economy and AI, and improving communication with entrepreneurs to enhance private sector confidence.

• Policy Cycle Duration: The current easing cycle may outlast previous ones due to factors like China's aging population, reduced labor supply, weaker market incentives, and increased geopolitical uncertainty, which lower the effectiveness of growth policies. The cycle could strengthen if policymakers aim for a ~5% growth target over the next two years.

• Context and Outlook: This RRR cut is part of a broader stimulus strategy expected to continue through Q4, supported by data from sources like Wind, indicating a potential strong cycle since 2017.