There is much debate in Beijing about the timing of a reserve requirement ratio (RRR) cut. Most indicators suggest that if history is any guide, a RRR cut should have already happened, said a research report of Standard Chartered Bank (HK) Ltd. Excerpt:

Is that the rumble of the Godzilla of monetary policy easing we hear? Maybe. A debate is raging in Beijing about whether to cut commercial banks' reserve requirement ratio (RRR). Today, we run through the numbers and show that if history is any guide, a RRR cut should have already happened.

The problem is that history is not a great guide. Faced with slower growth, the Li Keqiang government is clearly reacting differently than the previous administration. Chinese President Xi Jinping says that China should get used to a "new normal" economic situation. Both should be congratulated for holding the line and attempting to push through difficult reforms. However, while deleveraging cannot be achieved with super-loose monetary policy, it also cannot be attained with high real interest rates and low (and slowing) nominal GDP growth. We believe the time is coming when a RRR cut and broader-based easing will be needed to stabilize growth.

Commentators, including a former People's Bank of China (PBOC) deputy governor, have spoken out in recent days against the need for a RRR cut, and looser monetary policy generally. In addition, PBOC governor Zhou Xiaochuan said recently that the economy does not need a "large-scale stimulus"; we guess that he might view a RRR cut as such a move.

Those opposing a cut believe that the economy, while slowing, does not have a jobs problem, or that there are systemic risks in the financial system. So why cut? They are also concerned that a RRR cut would signal that Beijing is relying again on easy monetary policy and putting off difficult structural reforms.