According to the ANZ China's Research Team, the PBoC may need to further lower the RRR in 2016, with yesterday's decision to cut the RRR by 50 bp expected to immediately inject about RMB650bn into the banking system. Key Quotes Monetary policy considerations were front and centre overnight as China’s central bank cut its reserve requirement ratio. China’s foreign exchange reserves had fallen sharply, by USD99bn in January, suggesting a large capital outflow during the month despite a record trade surplus of USD63.3bn. The RRR cut is expected to immediately inject about RMB650bn into the banking system, alleviating the liquidity drain. Capital outflow pressures may persist on the back of RMB depreciation expectations and US policy rate normalisation. Thus, our China team expect that the PBoC may need to further lower the RRR in 2016. With inflation to remain low, there are also expected to be further cuts to interest rates. However, policymakers are likely to remain cautious about lowering the benchmark lending and deposit rates given the current RMB depreciation pressure. Other tools, such as the standing lending facility are expected to be experimented with to help guide market interest rates lower. For more information, read our latest forex news.