People’s Bank of China cuts reserve requirement ratio by 50 bps19 February, 2012, 17:15. Posted by Zarathustra
Tags: Economy, Monetary Policy, PBOC, People's Bank of China
Yesterday, the People’s Bank of China announced that the reserve requirement ratio will be reduced by 50 basis points, effective on 24 Feb 2012. The RRR is currently standing at 21% for large banks, thus the reserve requirement ratio for large banks will stand at 20.5% after the cut. With about RMB80 trillion of total deposits, the reduction in RRR should theoretically made about RMB400 billion of deposits available for lending.
This is the second RRR cut since the tightening cycle ended last year. However, as pointed out late last year, with modest capital outflow and shrinking foreign exchange reserve (if the trend continues into the year), monetary conditions will be tightened by itself even without the central bank attempting to withdraw liquidity. As a result, the latest cut in RRR will probably be a measure to offset the tightening bias of the monetary condition. We will certainly need to have more data points in the coming months to be really sure that the above mentioned things will continue well into late this year, but the view here remains that the move is to offset tight liquidity condition rather that to support growth outright.