Pretty much every China watcher, including us, has written in recent months about how reserve ratio requirement (RRR) cuts by the People’s Bank of China are not necessarily about credit easing. In fact these days, an RRR cut is not so much a move to make more credit available as it is to avoid reductions in liquidity.Read it at FT Alphaville
RRR cuts ≠ credit easing. Keep saying it.
By Kate Mackenzie
Market watchers have been calling for an RRR cut for quite some time and finally got the announcement over the weekend. The reality is that Chinese banks, similar to the US, are not reserve constrained. China has been building at levels that outstrip demand for many years and suppressing domestic consumption through sharply negative real interest rates. With home values falling across many cities, individual demand for new loans is likely to remain subdued. Without increasing demand for new loans, the RRR cut will have little effect aside from briefly altering investors expectations.