Earlier I had these (for background on what I am referring to here, in case you’ve missed it … and good morning!



MNI have more now … and I am not sure how to read it. On the face of it appears this report is saying it is no big deal … but I think between the lines it is saying this a very big deal indeed.

Here’s the report …

  • One source notes that the “SLF is not something new and it’s part of the PBOC’s monetary policy tools,” with the CNY500 bln equating to a RRR cut of just “above 50bp.”
  • The source also notes that the “RMB500 bln is only for 3-months and is the preferred targeted strategy of the PBOC instead of all-out RRR cut,” with a chance that the PBOC may engage in a “rolling” SLF.
  • The source also adds that current liquidity conditions in China are “not tight,” with 1-week Shibor and 7-day repo at 3.25%, 3.45% respectively and the recent IPO impact on liquidity has been “mild.”
  • The move however could be a “deliberate signal to push 7-day repo below 3%,” with downside pressure to remain on China IRS.

My reading of this is:

  • An action the equivalent of around just above 50 bp cut on the RRR (reserve requirement ratio) … that is a big policy move
  • Current liquidity is ‘not tight’ … so why the injection? I am reading this as confirmation it is meant as stimulus
  • I will note there is an ‘on the other hand’ (it doesn’t pay to be dogmatic in this business) “is only for 3 months” (but, again, on another hand … yes we are up to 3 hands now … “a chance that the PBOC may engage in a “rolling” SLF”

Thoughts welcome, as always!

ADDED ps. While this stimulus (in my reading) is a positive for the AUD … it ain’t all smelling sweet for the currency ….Is the Australian dollar market ignoring this risk to exports to its biggest trade partner?

And … ADDED MORE: PBOC 500 bn yuan liquidity add … another perspective again