Today, the Chinese yuan has risen sharply.

The latest offshore RMB has risen over 316 basis points intraday, breaking through the 7.07 level, with a low of 7.06225 and a latest report of 7.0629.

The onshore RMB has also broken through the 7.07 level, the first time since June 2023, with a low of 7.0619 and a latest report of 7.0624.

Analysis believes that the opening of the interest rate cut cycle by the Federal Reserve and the first significant 50 basis points rate cut have provided room for domestic monetary policy.

Will there be a follow-up on interest rate cuts tomorrow?

Overnight,The Federal Reserve has cut interest rates significantly by 50 basis points., lowering the target range of the federal funds rate to 4.75-5%, the first rate cut since 2020.

At the same time, Powell emphasized that the 50 basis points does not indicate a new rate cut pace, and the rate cut decision will still be made gradually in each meeting.

With the Federal Reserve starting an easing cycle, central banks in many countries are following suit, and the People's Bank of China is also expected to cut interest rates.

Tomorrow at 9:00, the People's Bank of China will announce the one-year and five-year Loan Prime Rate for September. The market is paying close attention to whether the LPR will be lowered this time.

Since the beginning of this year, the five-year LPR has been lowered twice, by 25 basis points in February and 10 basis points in July, for a total reduction of 35 basis points this year. The one-year LPR was also cut by 10 basis points in July.

The latest figures show that the one-year LPR is 3.35% and the five-year LPR is 3.85%.

In addition, there have been recent rumors in the market that the People's Bank of China may lower the interest rate on existing home loans to stimulate the economy.

Concerning this, China International Capital Corporation (CICC) believes that considering the constraints of the interest rate differential between China and the United States and exchange rates, the Federal Reserve's interest rate cut will provide more loose windows and conditions for the domestic market, which is needed in the current relatively weak growth environment and still high financing costs.

According to CICC's analysis, if the domestic easing measures are stronger than the Federal Reserve, it will bring greater boost to the market. If the magnitude is limited, which is a more realistic possibility under current constraints, then the impact of the Federal Reserve's interest rate cut on the Chinese market may be marginal and localized.

Is a reserve requirement cut also possible?

Currently, the domestic economy and credit are still relatively weak. In addition to an interest rate cut, several institutions have also mentioned the possibility of a reserve requirement cut.

On September 5th, the Director of the Monetary Policy Department of the People's Bank of China, Zou Lan, stated that the average statutory deposit reserve ratio for financial institutions is currently about 7%, leaving room for further reduction.

Guojun Securities believes that for the central bank, at this stage, striking a balance between "stable growth" and "preventing risks" may be more important, and a reserve requirement cut or an interest rate cut can both be expected in the short term.

From the time point of view, the required reserve ratio cut may be implemented before the National Day holiday to better offset the demand for cash withdrawals by residents during the holiday.
The timing of interest rate cuts is likely to be after the first interest rate cut by the Federal Reserve, and the restoration of the two-way fluctuation of the RMB exchange rate does not constrain the interest rate cut.

Zheshang Securities believes that policies will be strengthened to reduce the financing cost of the real economy, and there is still an expectation of a required reserve ratio cut. If the required reserve ratio is cut, it may lead to a 25 basis point decline in the one-year and five-year LPR. In addition, after the interest rate cut by the Federal Reserve, there is a possibility of further lowering the policy interest rate in China.