Friday 29 Mar 2024
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CIMB Research said the lowering of the required reserve ratio (RRR) by China yesterday will have a positive impact on equities.

The People’s Bank of China (PBOC) lowered the RRR by 50 basis points and introduced further targeted cuts for qualified city or rural commercial banks.

“We reiterate our positive view on Chinese equities for 2015 due to the easing liquidity tide. We believe the equity market will benefit from the spillover effect from monetary easing. As such, we maintain our ‘overweight’ rating on banks, insurance and properties,” CIMB Research said in a statement.

CIMB estimates there will be about RMB600 billion (RM341.4 billion) worth of liquidity released by these actions.

China’s central bank is expected to continue the monetary loosening to tackle growth and deflation risks, it said. “The monetary loosening is in line with our forecast. But the timing of it, before Chinese New Year, is earlier than expected, and may imply weaker-than-expected macro environment and/or significant capital outflow.

“Looking ahead, we expect further loosening in both pricing [interest rate] and volume [RRR] tools,” CIMB said.

“We believe the earlier-than-expected RRR cut may be triggered because of weaker-than-expected macro and inflation conditions, significant capital outflow and recent easing actions from other central banks,” it added.

CIMB said the RRR cut indicates that the PBOC believes the pressure on the renminbi is under control. “We continue to expect a mild depreciation in the renminbi to 6.3-6.4 against the US dollar by the end of this year.

“We expect further monetary loosening in the coming months, including interest rate and RRR cuts, to prevent deflation and sharp drop in growth.”

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