Hot on the heels of last week’s State Council meeting, the PBoC on Sunday announced that it will cut RRR by 50bp for almost all banks (county-level Rural Commercial Banks and Rural Credit Unions are excluded), effective on 5 July, notes the research team at Nomura.

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“Unlike the RRR cut in April, which was mainly employed to replace maturing MLFs, the RMB700bn to be released from today’s RRR cut will be fresh liquidity for the real economy, so it sends a strong signal of policy easing on the part of the State Council and the People’s Bank of China (PBoC).”

“Despite RRR cut, we believe the Chinese economy has yet to bottom out, and the situation could worsen before getting better. With strong internal and external headwinds in H2, we expect Beijing to introduce more easing measures in coming months. More specifically, we expect at least another RRR cut on a scale of 100bp before year-end.”