What they say

Chang Jian, chief China economist at Barclays Plc	Jeremy Stevens, economist at Standard Bank	Wang Tao, chief China economist at UBS AG	Ding Shuang, senior China economist at Citigroup Inc	Nathan Chow, economist with DBS Bank

Chang Jian, chief China economist at Barclays Plc

The announcement came in slightly earlier than expected. The central bank was cautious in terms of permanently injecting liquidity using the RRR cut in 2014. We are now looking for a total of three RRR cuts in 2015. We maintain our forecasts of two interest rate cuts in the first and second quarters respectively.

Jeremy Stevens, economist at Standard Bank

Despite November's interest rate cut, monetary conditions are rather tight. Credit uptake has remained depressed as excess capacity and subdued demand are entrenched. We still expect the central bank to cut interest rates in the first quarter, and inject liquidity into the financial system.

Wang Tao, chief China economist at UBS AG

We see the RRR cut as mainly a liquidity management tool. One has to bear in mind that the RRR cut is merely off-setting the shrinking contributions from foreign exchange accumulation, and is not a large net liquidity injection that will amplify China's base money supply to result in massive credit expansion.

Ding Shuang, senior China economist at Citigroup Inc

The PBOC had been using short-term measures such as medium-term lending facilities and reverse repos to deal with a structural liquidity shortage. We have argued RRR cuts, by releasing long-term liquidity, are the more desirable response. RRR cuts can also reduce the funding cost of banks.

Nathan Chow, economist with DBS Bank

The relaxation can be seen as an effort to counter the impact of capital outflows. China's foreign exchange reserves also fell, suggesting renewed capital outflows amid concerns over the economy and the yuan. Against the backdrop of capital inflows reversing, at least one more RRR cut is expected this year.