PBOC likely to further ease liquidity in H2 2018

The People’s Bank of China is likely to further ease liquidity. According to a Barclays’ research report, the Chinese central bank is expected to further loosen liquidity, including reducing banks’ RRR by at least 100 basis points in the second half of this year, to curb the sharp deceleration in credit growth.

However, given that deceleration credit growth is mainly because of the tightening of some financing channels by regulation, widespread RRR cuts can only partially ease the structural imbalances in access to credit throughout the economy, stated Barclays.

Especially, the major constraints to credit/loan creation include restrictions on loans to certain sectors, and pressure on banks’ capital adequacy ratios, which likely restrict the capacity for credit creation.

“We believe liquidity loosening on its own is unlikely to be sufficient to resolve the “credit crunch” and support growth, without meaningful loosening on other policy fronts”, added Barclays.

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