Positives of RRR Cut Are Likely to Be Offset by Rising Credit Quality Pressures as Economy Weakens

China Macroeconomics & Academia

Christopher Balding

Macroeconomics

<p>The PBOC announced on Sunday it would cut the RRR by another 50 bps. By their estimates this provides roughly 500 billion RMB to big banks and 200 billion RMB to small banks.  The additional liquidity is, according to the PBOC, supposed to flow to debt to equity swaps and small medium enterprise lending. </p><ol><li>As we have been pointing out, Chinese banks are under significant pressure. Despite the headline data that credit is falling it is really being swapped for shadow bank financing.  While Total…</li></ol>

The PBOC announced on Sunday it would cut the RRR by another 50 bps. By their estimates this provides roughly 500 billion RMB to big banks and 200 billion RMB to small banks.  The additional liquidity is, according to the PBOC, supposed to flow to debt to equity swaps and small medium enterprise lending. As we have been pointing out, Chinese banks are under significant pressure. Despite the headline data that credit is falling it is really being swapped for shadow bank financing.  While Total…

PBOC RRR Cut in Perspective.