Central bank may cut reserve requirement ratio further
Morgan Stanley China's chief economist expects reduction of 400 basis points
The market is expecting several more reserve requirement ratio (RRR) cuts this year, following the central bank’s latest move to cut the RRR by one percentage point last Friday, Yicai.com reported.
Xing Ziqiang, chief economist at Morgan Stanley China, estimates that the central bank will lower the RRR by 400 basis points this year. “There are 300 basis points to be cut now,” Xing added.
Jiang Chao, chief economist at Haitong Securities, also believes the central bank’s monetary easing will continue and that there is still some scope for downward RRR adjustment.
And the central bank is also likely to lower the rate of its open market operations (OMO), so as to direct funds into the real economy. This will cause the market rate to decline, which will be positive for the bond market in 2019, according to Jiang.
Ren Zeping, chief economist at Evergrande, said the central bank may make at least three more RRR cuts this year, so as to release long-term liquidity. The central bank could also lower the OMO rate, which is 30 basis points higher than the record low, Ren added.