China's RRR cut positive for real economy

"The RRR cut will help keep the financial market stable, prevent an economic downturn caused by deflation, and win time for restructuring," he said.

On Friday, PBOC governor Zhou Xiaochuan said on the sidelines of a World Bank-IMF meeting in Washington DC that China will continue prudent monetary policy, but be flexible based on economic data.

Room for more

Prior to the RRR cut, Chinese Premier Li Keqiang visited the headquarters of the Industrial and Commercial Bank of China, and the China Development Bank, a policy bank. The premier called on banks to help restructuring, stabilize economic growth, and reduce costs for small and medium-sized enterprises (SMEs).

Apart from the 100-bps cut in RRR for all banks, the PBOC also delivered additional RRR cuts for rural credit cooperatives, village banks, rural cooperative banks and the Agricultural Development Bank of China to help SMEs, agriculture and water projects.

There have been two interest rate cuts since November, the latest in March, and business financing costs have declined, albeit moderately, with their borrowing rate 6.83 percent at the end of March, down 12 basis points from three months ago.

Relaxed mortgage rules for second home purchases set the property market rising last month, with home sales up 65.9 percent month on month. The manufacturing sector also expanded in March.

Wang Tao of UBS said the RRR will not just improve business and market sentiment, but ensure adequate credit and liquidity. She predicted more monetary easing this year, including a benchmark rate cut. One more RRR cut remains possible.

Lian Ping also expects one more RRR cut this year given the persistent downward pressure on the economy, with the interest rate cut dependent on deflation risk.