Source: Bloomberg
China is seen making more cuts to banks’ reserve requirements to fuel lending and sustain economic growth as the housing market cools and Europe’s sovereign-debt crisis weighs on exports.
The proportion of cash that lenders must set aside will fall half a percentage point from February 24, the central bank said February 18 on its website. Standard Chartered Plc forecasts at least three more reductions this year, while HSBC Holdings Plc sees a minimum of two.
The ruling Communist Party aims to sustain the nation’s expansion without undermining a campaign to tame inflation that saw home prices drop in 47 of the 70 biggest cities in January. Policy makers may refrain from interest-rate cuts until nearer mid-year when consumer-price gains have slowed to below 3 per cent from 4.5 per cent last month, HSBC economist Qu Hongbin said Sunday in Hong Kong.
“We expect further easing measures from Beijing in the coming months, such as bigger new loans and at least two additional 50-basis point reserve-ratio cuts,” Qu said. Interest rates will “remain a secondary monetary policy tool.”
The Shanghai Composite Index rose 0.9 per cent as of 11:30 am local time, extending a five-week winning streak. Asian stocks rallied and metals gained.
Jin Qi, an assistant governor of the central bank, said that monetary policy will remain “prudent” in the face of a “grim” international situation and price pressures and imbalances in the domestic economy. Her comments were in a statement on the central bank’s website Sunday.
A 50 basis-point cut may add RMB400 billion (US$63 billion) to the financial system, according to Australia & New Zealand Banking Group Ltd. UBS AG says the move frees up about RMB350 billion and may have been triggered by tight interbank liquidity. The previous reduction was the first since 2008.
Data reported the day of the central bank announcement showed the effect of government curbs to deflate property bubbles and make housing more affordable. Prices failed to rise in any of the 70 cities, according to the statistics bureau.
A deteriorating outlook for the European Union and a “sharper-than-expected” deceleration in property investment in China are the biggest risks for the economy, according to Chang Jian, a Hong Kong-based economist at Barclays Capital Asia Ltd who previously worked for the World Bank. Chang predicted two more reserve-ratio cuts this year and no change in rates, adding that the government has more room to use fiscal policy to support growth.
A central bank estimate that M2, the broad measure of money supply, will increase 14 per cent this year implies that reserve ratios must fall further, according to analysts at lenders such as China Construction Bank Corp. The latest reduction means the nation’s largest lenders must set aside 20.5 per cent of deposits, down from 21 per cent, based on previous statements.
