China may need to slash the bank reserve requirement ratio (RRR) by at least another 150 basis points this year to boost lending and support the economy, according to a top Chinese investment bank.
In a research report, China International Capital Corp. (CICC) noted that M2, a wider gauge of money supply, hasn’t expanded sufficiently despite a slew of quantitative easing measures aimed at shoring up economic growth and reflation.
The investment bank feels that M2 growth has to top 13 percent, as compared with the current estimate of 12 percent, to provide adequate support to the economy.
Given the current concerns about an outflow of capital from the country, the People’s Bank of China (PBoC) should step up its policy easing, the Hong Kong Economic Journal cited CICC as saying.
Even if one were to assume zero fund outflow from the country, the central bank would have needed seven cuts, of 50 basis points each, in the RRR this year, CICC argues.
But figures show that there has been a 661.2 billion yuan total decline in the funds outstanding for foreign exchange, signaling constant capital outflows.
The central bank has enough room to further expand the country’s loan growth, the bank added.
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