September 6, 2019 / 10:45 AM / 13 days ago

INSTANT VIEW-China slashes banks' reserve requirements to boost flagging economy

(Adds comment from Barings, Macquarie, Bank of America Merrill Lynch)

Sept 6 (Reuters) - China’s central bank said on Friday it was cutting the amount of cash that banks must hold as reserves for the third time this year, releasing a total of 900 billion yuan ($126 billion) in liquidity to shore up the slowing economy.

Here are some reactions to the move:

LARRY HU, HEAD OF GREATER CHINA ECONOMICS AT MACQUARIE GROUP IN HONG KONG

“The move shows policymakers are increasingly worried but it’s far from enough to stablise the economy. The key constraint is that everything is slowing down – corporates are not willing to invest, because of the trade war, a global slowdown, and weak infrastructure and property sector growth.

“I think it’s very likely they will cut the LPR rate by about 5-10 bps later this month. I also expect another RRR cut of 50 bps by the end of this year.”

KHIEM DO, HEAD OF GREATER CHINA INVESTMENTSS, GLOBAL MARKETS AT BARINGS IN HONG KONG

“We expect more easing to come. Now, markets are waiting for the Fed to cut in its Sept FOMC meeting, and Europe to ease both monetary and fiscal policies at some stage as well. Ample liquidity is a necessary fuel to fire growth/reflationary assets.”

DAVID HAUNER, EMERGING MARKETS STRATEGIST AT BANK OF AMERICA MERRILL LYNCH

“The RRR cut is definitely very helpful,”

“I think we are going to see some further risk on and it will benefit currencies like the (South African) rand, the (Russian) rouble the (Brazilian) real and some of the higher beta and commodity credits.”

ULRICH LEUCHTMAN, HEAD OF FX AND EM RESEARCH AT COMMERZBANK IN FRANKFURT

“This did not come as a huge surprise. Of course, this is more easing and we saw in the China data recently that the economic problems are definitely not yet resolved. The uncertainty remains despite the announcement that there will be new trade talks in October, and even with regards to those new talks my impression is that most people don’t expect a lot of success from them in the short or medium term, the optimism has worn off a lot. So there is a lot of uncertainty - uncertainty over investments and that filters through to consumers.

“We have seen that car registrations continue to be weak, it is very clear that this is filtering all the way down the chain and that this will continue to be a risk to China’s economy.

“The PBOC and the government are reacting to this. But not in a way that they are trying to engineer a recovery of growth rates back to 6.5%-7%, but they want to avoid a crash.

“We may see a few more of these cuts, they are fine tuning and they may well use some other measures. The RRR is not the only instrument to steer the economy and the monetary policy - the liberalisation of the interest rate market is another instrument and they could take more steps on this front which may not only have long-term regulatory effects but also short term impact.”

NEIL MELLOR, SENIOR FX STRATEGIST AT BNY MELLON IN LONDON

“I suspect the uncertainty is how much will it be forthcoming. This won’t be a flood of stimulus. It is slightly more focused towards guiding growth to meet targets rather than boosting growth. My view is that China and many similar countries are in that same boat. Fiscal policy is constrained by debt and central banks jawboning and in some cases some targeted easing by central banks.”

KENNETH BROUX, FX STRATEGIST AT SOCIETE GENERALE IN LONDON

“Dollar/yen is back on the highs and it is helping 10-year U.S. yields near 1.60%. This is to help support the economy and the move was telegraphed, our economists had anticipated a move sooner rather than later. They are obviously determined to support the economy. We could see another cut in the coming months.”

LEE HARDMAN, FX STRATEGIST AT MUFG SECURITIES

“The announcement was largely expected. There has been an anticipation most of this week that China would be undertaking fresh easing with a cut in RRRs, and today obviously they have followed through on that. It will unleash some 900 billion of liquidity so that highlights they will be taking measures to try and support growth but on its own we don’t think it’s going to be sufficient.”

Reporting by London Markets team; editing by Susan Fenton

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