Officials have tried to avoid the perception of panic moves
No doubt the PBOC has heavily debated cutting rates since the start of the year. So far they have stayed on the sidelines.
I suspect that's because they don't want to look like they're responding to markets or panicking. That's why cutting now, when sentiment has stabilized, makes more sense.
There has been persistent chatter about cuts, starting in December when the Shanghai Securities News reported the RRR was to be cut that month. It wasn't but just this week, the China Securities Journal said the PBOC should cut the RRR and the government raise the deficit.
That was contrasted by today's report from Reuters, citing an unnamed official , who said the PBOC will not rush to cut the RRR. The message supposedly came directly from the PBOC.
The central bank "will not easily cut banks' reserve requirement ratios", Zhang Xiaohui told senior officials of policy banks and commercial banks at a recent meeting on liquidity management, said the sources with direct knowledge of the meeting.
"On the one hand we should maintain reasonable and adequate liquidity in the banking system, on the other hand we should pay attention to the pressure on the renminbi (yuan) exchange rate from excessively loose liquidity," she said.
The RRR is probably the PBOC's most powerful tool but they have a hefty bag of tricks that they could tap instead, including vanilla interest rate cuts or liquidity injections. How the market reacts may come down to the perception of the tools they deploy but a move on the weekend or early next week could keep the momentum in commodity currencies and yen crosses going.
