China’s central bank is expected to further cut the amount of cash that commercial banks must hold as reserve by another half a percentage point in December to inject more liquidity into the market and also shore up economic growth, analysts said.
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The window to reduce the reserve requirement ratio (RRR) is open because the government has stepped up the issuance of bonds, combined with the seasonal rise of liquidity and maturity of the medium-term lending facility, Citic Securities economists said on Monday.
“The central bank may also use various tools, such as buy-back reverse repurchase agreements and government bond purchases, to stabilise market liquidity,” they said.
If implemented, it would mark the third cut this year, following reductions in February and September, when half a percentage point cut each time injected 1 trillion yuan (US$138 billion) each into the market.
Speaking at the Financial Street Forum in late October, People’s Bank of China governor Pan Gongsheng hinted at a cut of the ratio by between a quarter and half a percentage point before the end of the year “depending on market liquidity conditions”.
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The average RRR for Chinese banks stood at 6.6 per cent as of September 27, with larger institutions required to hold 8 per cent of their deposits as reserves, while medium-sized banks must hold 6 per cent and small banks must hold 5 per cent, according to PBOC.