The central bank's quarterly monetary policy report set the tone for accelerating policy easing

　　The People's Bank of China said in its quarterly monetary policy report that it would step up macroeconomic policy adjustments and prevent excessive volatility in the renminbi exchange rate. That could signal the central bank will ease policy further to support growth.

　　Indeed, last week's surprise trading already showed that the central bank is worried about the state of the economy. Most institutions now believe that the central bank will further cut policy rates and reserve requirement ratios, and deploy more structural tools.

　　Zhao Min, chief economist at China News Agency, said: "The central bank's language indicates that monetary policy support for economic growth is likely to remain strong."

　　However, the central bank is likely to wait until at least next month to cut the reserve requirement ratio - it has not cut rates and cut the reserve requirement ratio in the same month since the mid-2016 lending rate cut. At the same time, the need for additional liquidity may have diminished given this week's interest rate cuts, the roll-over of maturing policy loans, and the large net injection of funds in daily open market operations.

　　Chang Shu, chief Asia economist at Bloomberg Economics, said: "The PBOC's forceful fightback against the yuan's fall - with the strongest midpoint setting on record on Friday - suggests its discomfort with the yuan's rapid decline, but probably not the depreciation itself." A weak yuan won't stop the PBOC from cutting interest rates further - we expect two more this year."

　　Economists at Goldman Sachs wrote in a note that they expect the People's Bank of China to cut the reserve requirement ratio by 25 basis points in September. They also expect the central bank to cut reserve requirements by the same amount again in the fourth quarter, and to cut the policy rate by another 10 basis points at that time. Economists at CitiGroup also expect the reserve requirement ratio to be cut by 25 basis points soon.

　　Other measures include a possible cut in deposit rates by state-owned banks, which could ease pressure on their earnings, while the central bank said in its quarterly report that it needed to maintain banks' "reasonable profit and net profit levels." At the same time, lowering existing mortgage rates could also reduce households' debt burden.