FX

PBOC cuts banks’ RRR by 50bps, AUD/USD jumps 20-pips

In a widely expected move, the People’s Bank of China (PBOC) slashed the banks’ Reserve Requirement Ratio (RRR) by 50bps on Monday.

Key takeaways from PBOC statement

Banks’ reserve requirement ratio cut effective as of December 15.

Cuts banks’ reserve requirement ratio by 50 bps.

Weighted average RRR for financial institutions at 8.4% after the new cut.

Will keep the prudent monetary policy.

The new RRR cut will release 1.2 trillion-yuan long-term liquidity.

Will keep liquidity reasonably ample.

Will step up cross cyclical adjustments.

Will not resort to flood-like stimulus.

New RRR cut will lower capital costs for financial institutions by around 15 billion yuan per year.

The Chinese central bank cut the RRR for the second time this year. This comes after Premier Li Keqiang on Friday said that RRR cut is a way to step up support for the economy, especially small firms.

Market reaction

In a knee-jerk reaction to the PBOC action, AUD/USD jumped about 20-pips to hit daily highs at 0.7041.

At the time of writing, the pair is trading at 0.7035, up 0.50% on the day.

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