Quotes from Societe Generale Cross Asset Research:
-With the assumption of zero growth in FX reserves and a 12-13% M2 growth target, we forecast a total of 100bp in RRR cuts by the PBoC in 2015. It may well be two old-fashioned 50bp cuts. Or, given the considerable stock of deposits, it may be possible that the PBoC's liquidity easing may take the form of more measured doses of 25bp cuts.
-Regardless of the timing or the size of each cut, the total impact would be CNY1.2-1.3tn less sterilisation throughout the year than otherwise. However, commercial banks are likely to hoard cash and increase excess reserves, and thus the PBoC may still need to extend another CNY300-600bn in lending facilities (i.e.domestic assets) to provide commercial banks with extra incentives to lend. Therefore, despite appearing aggressive, the monetary policy stance will remain just reactionary.
The material has been provided by InstaForex Company – www.instaforex.com