PBOC Hints of Possible RRR Cut to Support Rural Areas

Source: Bloomberg

The People’s Bank of China indicated the possibility of using policy to strengthen rural development, driving market speculation of a reserve requirement ratio reduction as soon as Friday.

• The PBOC said it will expand government financing guarantees and establish an information system that would assist in rural financing.
• It will also maintain the stability of financial support to ensure regional gains, with a focus on grains and major farm products and new agricultural firms.
• Economists believe there is a 70% chance that the reserve requirement would be cut in the next two months, with some predicting the reduction as soon as Friday.
• Any cut in the reserve requirement would likely infuse less than 500 billion yuan into the financial system, with the requirement for small banks already low at 5.5%.
• The PBOC statement came after a meeting with ministries of finance and agriculture to look into areas to support rural areas.
• The Ministry of Finance also committed to boosting fiscal spending and speed up government bond sales to drive economic support in the second half.