PBOC cuts RRR to 18.5% in surprise move

Monday, April 20, 2015

The People’s Bank of China moved to increase stimulus as details of additional easing measures were released over the weekend. Central bankers on Sunday announced that it would be cutting its reserve requirement ratio by 1% in a move that would hopefully free up additional capital among the major banks to stimulate lending. The move by policy makers to cut the amount of cash commercial banks must hold with the central bank to 18.5%, the biggest cut since November 2008, comes as softer economic data out of China raises concerns that officials are struggling to stem the gradual slowdown in growth and could pave the way for further stimulus in the coming months.

Mainland Chinese equity indices led the slide lower as the majority of Asian benchmarks erased some of the recent gains after investors viewed the recent rally as overdone. Policymakers in China had expressed caution over the impulsive stock market rally which has seen the Shanghai Composite and CSI 300 add over 35% and 30% respectively since the start of the year. Increased volatility and liquidity concerns had been weighing heavily on market participants and the sharp sell-off overnight was indicative off short term sentiment turning bearish and with Shanghai trading volumes 40% above their 30 day moving average we could see choppy trading dominate the coming sessions.

Industrial metals lifted higher after the PBOC move with three month LME lead prices rallying to their highest level year-to-date early on this morning, trading back above $2,050/tonne. Zinc prices also reacted positively to the stimulus efforts as early intraday moves saw the metal push towards $2,248/tonne before pulling back towards the 200 day MA. Industry commentators expect the 1% RRR cut to free up as much as $200bn within the Chinese economy for lending which could subsequently see a significant pick-up in demand for industrial metals.

Chinese cental bank cuts RRR to 18.5%

CHRRDEP Index China Required De 2015 04 20 07 46 31

LME 3-M Zinc prices rally intraday immediately after move

LMZSDS03 Comdty LME ZINC 3 2015 04 20 08 10 17

Events for today

0001

UK

Apr

Rightmove House Prices

0700

DE

Mar

PPI

1000

EZ

Feb

Construction Output

1330

US

Mar

Chicago Fed

Topics: LME, PBOC, Zinc, Lead
More from: Kash Kamal