PBOC eases policy, trade talks back in focus

In keeping with its usual practice of making policy moves late on Fridays, the PBOC today announced a 100bp cut to the required reserve ratio aimed at supporting the economy and managing liquidity ahead of Chinese New Year. With economic activity likely to weaken further over the months ahead and liquidity conditions set to tighten due to maturing loans, we expect further policy easing before long. Meanwhile, China’s efforts to address US concerns ahead of the trade talks next week are unlikely to convince hawks in the US administration. But with President Trump now personally involved in the negotiations and showing his willingness to make a deal, an agreement might just be reached over the coming weeks.