China Cuts RRR By 1% To Release Liquidity

It's only logical that one day after Trump accused China (and Russia) of playing the "currency devaluation game" in a time of rising Fed rates, that Beijing would respond by doing precisely what it was accused of, and moments ago the PBOC announced that effective April 25, China's central bank will cut the reserve requirement ratio (RRR) for qualified banks by one percentage point.  The new targeted RRR will be effective April 25.

The PBoC said that that the cut is for banks to repay MLF loans and will release about 400BN yuan of liquidity net (excluding the MLF repayment). According to preliminary calculations, this targeted easing move is similar to what the PBOC did back in September 2017, when China cut the RRR by at least 50 bps; it marked the first RRR cut since February 2016.

So far, there has been no reaction in the USDCNH which trades at 6.2750. And while overnight Q1 YoY GDP was reported as coming in at 6.8%, various analysts have echoed what we said here recently, raising concerns that Chinese growth may have peaked at this juncture.

Here are some additional observations on China's latest econ data from Bloomberg Economics' Tom Orlik who writes that stead expansion in China’s 1Q GDP shows the economy shaking off threats from deleveraging and protectionism, however adding that a lower reading for nominal growth is a warning sign that the industrial reflation cycle that drove profits higher and made debt repayment more manageable in 2017 is turning down:

  • Growth of 6.8% year on year was unchanged from 4Q 2017 and in line with the consensus estimate. Relative to expectations of a continued slide in China’s growth, the stability in 2017 and that’s now stretching into 2018 tells a positive story.
  • Even so, a slowdown in nominal growth, which we calculate at 10.2% year on year in 1Q, down from 11.1% in 4Q 2017 and a peak of 11.7% a year earlier, is a reminder that China will not stay in its sweet spot forever. Indeed, when it comes to the all-important deleveraging challenge, it’s nominal growth that is the more important gauge.
  • The monthly numbers suggest a mixed end to the quarter. Industrial output and fixed asset investment both slowed. Retail sales accelerated.
  • Looking forward, we continue to expect a modest deceleration in growth stretching over the course of the year, as slower credit expansion and -- potentially -- protectionist trade policies take a toll. Our credit impulse -- which measures the change in new credit as a share of GDP -- is now pointing firmly down. Still, from 6.8% in 1Q our 6.3% call for the year as a whole is looking too pessimistic and we will revisit it.
  • As ever, the remarkable stability of China’s headline growth numbers raises questions about their value as a guide to the state of the economy. Since the start of 2015, GDP has moved in a range between 6.7% and 7%. A plausible story about current strength is that it reflects a rebound from a larger-than-reported slowdown in 2015.

 

Comments

NoDebt Tue, 04/17/2018 - 07:23 Permalink

The US hasn't changed it's RRR since 1992.  I'm sure if we did it would be like when you throw an unbalanced load in your dryer and starts vibrating across the basement floor.

 

all-priced-in MARDUKTA Tue, 04/17/2018 - 10:22 Permalink

I just bought an LG washer - because it was on sale and was big enough to hold a kind size comforter.

 

I didn't realize it when I bought it - but it determines if the load is balanced or not - if it is not it shifts it around until it is before the water is added.

 

BTW

Fuck you Sears - after having the last two Kenmore washers break down after only 3 years of use you can suck on it - I will never buy anything from you again.

 

 

In reply to by MARDUKTA

Salmo trutta Tue, 04/17/2018 - 07:23 Permalink

Same tool the Maestro used to jump start the 1990-1991 US recession.  Wrong move.  The proper move is to drive the commercial banks out of the savings business, activating idle funds, completing the circuit income velocity of savings.

---– Michel de Nostradame (the best seer in history)

Truth Eater Tue, 04/17/2018 - 07:34 Permalink

MLF loans?  Sounds like another scandal.  I wonder if it includes gold bar showers.

China has been fighting a currency and trade war for decades.  It has been uncontested until now.

amadeus39 Tue, 04/17/2018 - 07:40 Permalink

Money changers (Jews) of USA versus money changers (Chinese) of Asia. Should be a great game. When Jews abandon USA and start moving to China, you'll know who is winning. I believe this is happening already.

 

 

amadeus39 richsob Tue, 04/17/2018 - 08:49 Permalink

Maybe their reputation proceeds them. The Jews, that is. Chinese reputation is similar. Just ask someone from the Asian Tiger countries. Something to do with their DNA and culture, I suspect. How much of each I can't say, but hazard a guess that DNA is a more significant factor, since both groups are scattered around the world. Also, if you haven't noticed, the Jews are also very racist, but they will make allowances if you have a lot of money.

 

 

In reply to by richsob

Dragon HAwk Tue, 04/17/2018 - 08:08 Permalink

It's like telling a starving homeless person he has to keep either 5 cents or 10 cents in his pocket or be called a vagrant.  either way he is still going to starve.  There is a reason the banks can't pay back all their depositors when SHTF. and it has nothing to do with how many coins are in their pocket