China’s PBoC cut signals easier monetary policy stance

China eases monetary policy, and is likely to continue to do so, with the People’s Bank of China cutting its reserve requirement ratio (RRR) by 50bps this week.

We see this cut as a clear signal for an easier monetary policy stance – contrary to April’s cut, which was a technical adjustment and was not meant to imply a change of policy stance.

This RRR move will inject 700bn yuan of liquidity into the economy, and in particular RMB 500bn for large banks to support debt-to-equity swap programs (giving lenders an equity stake in companies in exchange for debt relief) and 200bn for smaller banks to support small- and mid-cap companies.

This new round of policy easing is a support to growth after some disappointing data in May, but will also put pressures on property prices. We expect China to continue its monetary easing if trade tensions continue, depreciating further the yuan against the dollar. In Singapore, price inflation remains low but the medium-term trend is rising, with healthcare (+2.3%), food (+1.3%), and consumer prices (+0.6%) all increasing.

Gero Jung – Chief Economist – Mirabaud AM