Ok, so in addition to GDP, the usual raft of accompanying econ and all manner of announcements on trade, China also acted on the monetary policy front on Tuesday, first overnight with an MLF hike and then, with an RRR cut. This hit at roughly 6:30 a.m., New York time:
- CHINA CUTS RRR FOR QUALIFIED BANKS BY 1 PERCENTAGE POINT
So the MLF hike (367.5B yuan in 1-year ops conducted at 3.30% versus 3.25% previously), is just a follow up to the 7-day reverse repo hike that came hours after the March Fed hike.
That’s really the context for the RRR cut. “It’s a technical measure to counterbalance higher rates on OMOs for banks, allowing them to pay back MLF loans and improve their liquidity balance,” Bloomberg’s Sunil Kesur said shortly after the RRR announcement which hit late in the day in China.
In the same vein, SocGen’s Yao Wei notes that China is probably just trying to balance out the deleveraging push by ensuring there’s plenty of liquidity. “As shadow credit growth is falling quickly now, banks need all the help they can get to sustain formal bank lending,” Yao said this morning.
That’s just another way of saying that the PBoC is keen to avoid a scenario where loans to the real economy become collateral damage in the effort to squeeze out unproductive credit from the country’s labyrinthine shadow banking complex.
Whatever the case, Hang Seng futures and FTSE China A50 futures jumped on the news:
The RRR cut goes into effect April 25.
This all comes as TIC data shows China’s holdings of USTs rising the most in six months in March despite recent jitters about the possibility that Beijing could dump Treasurys as a kind of last resort if Trump pushes the trade issue too far.