China Running Out of Dollars: PBoC Cuts RRR Again
Nothing has changed. The slow motion global dollar deflation is still underway. The odds of a large, one-time devaluation of the renminbi is increasing, not falling. The size of the eventual adjustment is growing as well.
Alhambra: China RRR: Surprise But No Surprise
In July 2015, just before everything broke, PBOC funding of the Big 4 State-Owned Banks was less than RMB 100 billion. As of the latest figures for December 2016, it was RMB 1.17 trillion.
…The RMB is flowing outward from the central bank, but money markets are increasingly starved of funds.
With the New Year holiday approaching, the PBOC stunned the mainstream by reducing the RRR for five of China’s largest banks today, and doing so by a full percentage point. The unconfirmed reports that I saw suggested this was only a temporary measure, in addition to another 28-day funding conduit that was just added for “major commercials”, but it doesn’t make any sense given the trillions in RMB already flowing unless you take account of that “something” else.
China has allowed its five biggest banks to temporarily lower the amount of cash that they must hold as reserves, to ease seasonal liquidity tightness amid huge cash demand heading into the long Lunar New Year holiday, three sources with direct knowledge of the matter said.
The People’s Bank of China (PBOC) has cut the reserve requirement ratio (RRR) for the banks by one percentage point, taking the ratio down to 16 per cent.
It will restore their RRR to the normal level at an appropriate time after the holiday, according to sources.
“This is a temporary adjustment, and is mainly in response to the cash withdrawal, tax payment and reserve payment. (The RRR) will go back to the normal rate after the Lunar New Year holiday,” one source said.
The PBoC made a similar move in 2015. WSJ: China Cuts Reserve Requirement Ratio