Last weekend Chinese authorities moved to shore up faltering growth with a huge 1% reduction to banks’ reserve ratio requirement (RRR) to 18.5%. That freed up around 1 trillion yuan on bank balance sheets which could flow from there into the economy.
On Friday, Li Yangzhe, head of the economic operation office at the National Development and Reform Commission (NDRC), said “there will be a greater effort to adjust economic policies. There will be a bigger effort to stabilise growth.”
Of course China can do more than just lower the RRR. It has numerous policy options on both the fiscal and monetary front at its disposal. But whichever way policy makers go, more easing seems almost certain according to an economist at Wells Fargo in the US who wrote in a note Friday that “further slowing in China likely in coming quarters, Chinese authorities probably will ease monetary and fiscal policies further.”
What’s interesting about the Wells Fargo commentary however is that the economists included a chart of the RRR which highlights just how far it could fall if the PBOC wants to take it back toward the GFC low.
That level, 15%, would free up 3.5 trillion yuan from bank balance sheets.
That’s about US $560 billion of additional monetary policy easing should the PBOC feel the need to unleash a torrent of cash into the Chinese economy.
Here’s the chart: