Fitch Ratings: China's two recent reserve requirement ratio (RRR) cuts amid slowing economic growth and rising trade risks have prompted market speculation that a new cycle of monetary easing is underway, but Fitch Ratings believes it is too early to conclude recent policy actions mark a clear reversion in stance. A return to policy settings that add to the economy's imbalances and vulnerabilities, such as credit stimulus, nevertheless remains a risk and could put downward pressure on China's sovereign rating, as Fitch has previously stated.

The decision by the People's Bank of China over the weekend to implement another 50bp RRR cut across much of the banking sector follows a targeted 100bp cut in April. The latest cut will release around CNY700 billion in reserves, effective on 5 July, bringing the combined net reserve injection to CNY1.1 trillion this year. The government has stressed that funds released by the latest cut should be used to support implementation of the debt-to-equity swap programme and small and micro-sized enterprise lending.