China RRR cut - Analysts react

A move by China´s central bank to cut the reserve requirement ratio for the country´s lenders was both confirmation that policymakers in Beijing retained an 'easing' bias and a signal that they were less concerned about outflows getting out of control. It also meant the seven day repo rate was now - arguably - the key gauge of the monetary stance and was likely to fall over coming weeks. An explicit mention in Monday´s statement about the desire to support credit growth was also "significant". Finally, the decision also suggested that concerns about capital flows had eased, said Capital Economics´s chief Asia economist, Mark Williams.

Monday´s move by the People´s Bank of China to ease policy further came four weeks after China announced it would reduce the down payment for first time home buyers and was not wholly unexpected. With less downward pressure on the yuan, policymakers saw a window to ease policy. A key aim of Beijing´s decision was to help deal with overcapacity in construction - which has seen a very hard landings after years of over-investment - by stoking demand for new houses. Supporting construction factors into policy moves by Beijing a lot more than boosting exports, another reason why a devaluation by China was unlikely, Danske Bank chief analyst Allan von Mehren said.

-- More to follow --