PBoC did as had to do, more to come

The PBoC announced a cut to the RRR for all banks by 50bp, effective as of 6 September. This move is absolutely necessary to reverse the passive liquidity tightening caused by FX intervention and therefore much anticipated.

In addition, the benchmark one-year deposit and one-year lending rates were also cut by 25bp to their lowest levels ever. The rate cut is a surprise, but its easing message is somewhat muted by further rate liberalisation - any deposit with duration longer than one year is no longer subject to any cap.

"The PBoC did what it had to do, but will this be sufficient? Not certain, particularly if FX intervention continues, as liquidity pressure will build quickly again in the onshore financial system. But how far will that go? The PBoC has to decide its currency strategy first", says Societe Generale.