PBoC announces half point cut to RRR for all lenders

The amount of reserves that banks will be asked to leave aside at the PBoC was reduced by half a percentage point, which Capital Economics said would lower the weighted-average RRR for the entire banking system from 8.9% to 8.4%.

The reduction was to be effective from 15 December, the day of the US central bank´s next announcement on interest rates.

Only half of the economists surveyed by Bloomberg had anticipated that a reduction in the RRR would be announced in the fourth quarter.

According to Julian Evans-Pritchard, senior economist at Capital Economics, the chief aim of the PBoC was to "nudge banks to lower lending rates to help struggling firms but doesn’t want to engineer a sharp pick-up in the quantity of lending."

Evans-Pritchard's standing call for a while now had been that the PBoC would lower its Loan Prime Rate during the fourth quarter, although he conceded that time was obviously running out for that call.

"Without a significant relaxation of the quantitative restrictions on credit growth, this alone is unlikely to prevent China’s economy from slowing further.

"But it could help soften the downturn by easing financial strains for some indebted firms and it is one reason we expect yields on 10Y Chinese government bonds to fall to 2.50% by the end of next year."