MARKET TALK: China IRS Falls; PBOC Says "Lots Of Room" To Cut RRR

China onshore IRS are sharply lower after the PBOC Gov. Zhou Xiaochuan says that in theory there is "lots of room" to cut banks' reserve requirement ratio further. The one-year IRS is 7 bps lower at 3.05%-3.15%, the five-year IRS is 8 bps down at 3.24%-3.34%, and the one-to-five-year spread is 1 bp narrower at 19 bps. The benchmark seven-day repo rate is 19 bps lower at 2.80%. "According to what Zhou said, the PBOC may cut reserve ratios if its foreign exchange position declines," a Shanghai-based foreign bank trader says, referring to the senario of falling foreign exchange inflows into China. But he adds the swaps have limited downside room even if the PBOC does cut the RRR ratio due to the swaps' recent losses.