Instant view: China cuts banks' required reserves

BEIJING (Reuters) - China's central bank cut the reserve requirement ratio for its banks on Wednesday by 50 basis points for the first time in nearly three years to ease credit strains and shore up activity in the world's second-largest economy.

LIU JUNYU, BOND AND MONEY MARKET ANALYST AT CHINA MERCHANTS BANK IN SHENZHEN:

"The RRR cut is mainly due to the negative growth of China's foreign exchange purchase positions, which means the PBOC is unable to expand its monetary base by injecting money by purchasing foreign exchange.

"Now that the PBOC has started making RRR cuts, the market will expect it to keep doing so in the future. So the market will become quite optimistic about an easing of monetary policy, although an interest rate cut is not expected to occur until at least the first quarter.

"Bond yields will fall amid the optimism, although money market rates will drop more slowly since those rates are affected by money supply, which needs time to pick up despite the RRR cut."

ZHIWEI ZHANG, CHINA ECONOMIST AT NOMURA IN HONG KONG:

"I think the move is partially driven by capital outflows in November. Also, it may indicate that the economy has weakened quite bit and that the official PMI reading does not look very good."

SHI CHENYU, ECONOMIST WITH THE INVESTMENT BANKING UNIT OF INDUSTRIAL AND COMMERCIAL BANK OF CHINA:

"It's a surprising move -- the market was not expecting the central bank to (cut RRR) so fast.

"The move sends a clear message that the central bank is ready to relax its policy stance. The rare capital outflow in October may become a frequent thing next year, and the decision-makers have to adjust to these changes."

HUA ZHONGWEI, ANALYST WITH HUACHUANG SECURITIES IN BEIJING:

"It's the start of a relaxation cycle, and the central bank is expected to take more steps.

"The economic slowdown is there, and capital inflows are set to fall further, and many banks are finding liquidity shortages.

"However, I still don't think China will cut benchmark interest rates in the coming months because that would mark a fundamental change rather than a fine-tuning."

(Reporting by China newsroom; Editing by Don Durfee)