The central bank is unlikely to make across-the-board cuts to reserve requirement ratios (RRR) because it prefers to use targeted monetary tools to keep liquidity at reasonable levels, the China Business News reported Monday, citing economists and analysts.
Fresh speculation of a wholesale reduction was triggered by a government announcement Friday that it will cut the ratio for more banks that support the rural economy and small and medium-sized enterprises. It also said the country’s economy still faces “relatively big” downward pressure and timely policy fine-tuning is needed.
“The country will lower the RRR for banks whose loans for real economic activity such as lending to the agriculture sector and SMEs have reached a certain proportion,” the State Council said after a meeting chaired by Premier Li Keqiang.
The State Council did not specify the size or timing of the cut.
Li Zhiqiang, chief analyst with China Minsheng Banking’s research center, was quoted as saying that specific policies are expected to be unveiled in June and the targeted cuts are likely to be largely limited to some policy lenders and not available to big banks or national joint-stock banks.
Zong Liang, deputy director general of Bank of China’s research institute, said a fully fledged ratio cut is unlikely because the central bank has trod cautiously in its monetary policy shift. Zong said a dramatic action may have economic side effects while targeted measures could help adjust economic structure.
Ji Zhihong, director of the central bank’s financial market department, said: “Increasing efforts for a targeted RRR cut do not mean a shift from a prudent monetary policy.”
Ji said the central bank will keep aiming for a steady monetary market by using various tools to maintain liquidity at an appropriate level.
In April, China cut the RRR for county-level rural commercial banks by 2 percentage points and that of rural credit cooperative unions by 0.5 percentage point.
Bank of China’s Zong said the new RRR reduction efforts plus April’s action are expected to release 300 billion yuan (US$48.7 billion) of liquidity into the market.
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