Article Image
News Link • China

China RRR Cuts Are Not Stimulus, They Are A Warning

• https://www.zerohedge.com, by Jeffrey Snider

For the largest institutions, it will "only" be their sixth and the first one since January 2019. The PBOC has decided it is time for more RRR cuts. Effective September 16, the ratio all banks are required to hold of reserves will be reduced by 50 bps; applying to certain city banks, the decrease will be 100 bps.

It sounds like a flood of stimulus, enabling China's beleaguered financial system to utilize more of its own stored up monetary resources. A lower RRR means they can put more of these reserves, more of their money to work in the Chinese economy. That's how these measures are universally characterized. As you'll see in every news report, the claim 50 bps RRR is equal to unlocking about RMB 900 billion "liquidity."

While that may be technically true, it is still a lie of omission. What's left out of the story is vastly more important. You are left with the misimpression that this is an effective surplus of funds which will be thrown on top of an otherwise static and stable condition. A net increase.

What's really happening, and why RRR's are a warning rather than stimulus, is that the 900 billion is meant to hopefully partially fill in a much bigger and more dynamic funding/liquidity gap that already exists.

Join us on our Social Networks:

 

Share this page with your friends on your favorite social network:


midfest.info