CDT Money: Waiting For The Bottom

The People’s Bank of China announced a 50 bps cut in the reserve requirement ratio (RRR) for commercial lenders on Saturday as it stepped up efforts to boost growth amid signs of a weakening economy. The second such cut this year, which will officially go into effect on May 18, is intended to give local banks more breathing room to lend after the central bank announced on Friday that total deposits had fallen in April. But it also comes after a week of other dismal economic data releases, including signs of slowing global and domestic demand, lower power consumption and the weakest industrial output growth in three years.
China’s trade partners feel the pain of “deceleration” in both directions, including the ports of Southern California. And with China’s economic growth under siege both at home and abroad, economists don’t believe Saturday’s RRR cut will solve the economy’s problems by itself and instead see it as a prelude to a broader economic stimulus policy by the government. From The New York Times:
“We expect more aggressive delivery of policy stimulus via quantitative easing, substantial tax breaks, fiscal spending and investment deregulation in the coming months to ensure a soft landing,” Qu Hongbin, the co-head of Asian economic research at HSBC, said in a report.

Interbank lending rates have been sinking in China, a sign that the banks have plenty of spare cash even without being told that they can hold smaller reserves.
The cut in the reserve ratio should be seen “more as a signaling device used by the government to show its willingness to loosen policy in light of the significant weakening in activity growth in April,” Yu Song, an economist at Goldman Sachs, wrote in a research report.
The state-run China Securities Journal hinted on Monday that any

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One Response to CDT Money: Waiting For The Bottom

  1. Will says:

    The PRC economy and government are indeed not somehow insulated from the effects of the business cycle and from phenomena as bubbles and overbuilding.