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PBOC lowers reserve ratios
Source: Bloomberg News |
November 24, 2011, Thursday
|
Print Edition
Print Edition
CHINA'S central bank is lowering reserve requirement ratios for more than 20 rural cooperative banks by half a percentage point, adding to signs of a shift toward allowing greater credit growth as the economy slows.
The move reduces the percentage of deposits that the cooperatives are required to park with the central bank to 16 percent, a "normalization" after an increase a year ago, the People's Bank of China's Hangzhou branch said in an e-mailed statement yesterday.
The PBOC yesterday gave no indication whether it may cut reserve requirements for the largest commercial banks, a step that Bank of America Merrill Lynch predicts may come in January.
Yesterday's decision follows a pledge by Premier Wen Jiabao's government to implement more "forward looking" and flexible monetary policy as the global economy struggles to sustain its recovery.
With prospects for Chinese export demand slipping, a preliminary manufacturing purchasing manager index for November fell to its lowest level since 2009.
"The unexpectedly sharp drop in China's flash PMI for November, if corroborated by other indicators, is likely to push policy makers to go beyond policy 'fine-tuning' to outright easing," said Mark Williams, a London-based Asia economist at Capital Economics Ltd. "Today's confirmation that the PBOC has lowered reserve requirements for some banks is likely to be only the start."
In another sign of China's shift, the central bank on November 11 said yuan lending was 586.8 billion yuan (US$92 billion) in October, exceeding September's 470 billion yuan and higher than the 500 billion yuan median estimate in a Bloomberg News survey.
The PBOC has also injected greater liquidity into the market for loans between banks, through open market operations that have depressed interbank rates, Goldman Sachs Group Inc economists wrote in a note to clients last week. Further tools will include a slower pace of currency appreciation and looser fiscal policy, Goldman analysts said.
Policy makers may have to cut the reserve ratio for commercial banks if financial institutions' yuan positions decline further in the rest of the year, said Wang Tao, a Beijing-based economist at UBS AG.
Financial institutions' yuan positions, accumulated from central bank purchases of their foreign exchange, fell 24.9 billion yuan in October, a PBOC report showed this week. The measure is an indication of capital flows.
The move reduces the percentage of deposits that the cooperatives are required to park with the central bank to 16 percent, a "normalization" after an increase a year ago, the People's Bank of China's Hangzhou branch said in an e-mailed statement yesterday.
The PBOC yesterday gave no indication whether it may cut reserve requirements for the largest commercial banks, a step that Bank of America Merrill Lynch predicts may come in January.
Yesterday's decision follows a pledge by Premier Wen Jiabao's government to implement more "forward looking" and flexible monetary policy as the global economy struggles to sustain its recovery.
With prospects for Chinese export demand slipping, a preliminary manufacturing purchasing manager index for November fell to its lowest level since 2009.
"The unexpectedly sharp drop in China's flash PMI for November, if corroborated by other indicators, is likely to push policy makers to go beyond policy 'fine-tuning' to outright easing," said Mark Williams, a London-based Asia economist at Capital Economics Ltd. "Today's confirmation that the PBOC has lowered reserve requirements for some banks is likely to be only the start."
In another sign of China's shift, the central bank on November 11 said yuan lending was 586.8 billion yuan (US$92 billion) in October, exceeding September's 470 billion yuan and higher than the 500 billion yuan median estimate in a Bloomberg News survey.
The PBOC has also injected greater liquidity into the market for loans between banks, through open market operations that have depressed interbank rates, Goldman Sachs Group Inc economists wrote in a note to clients last week. Further tools will include a slower pace of currency appreciation and looser fiscal policy, Goldman analysts said.
Policy makers may have to cut the reserve ratio for commercial banks if financial institutions' yuan positions decline further in the rest of the year, said Wang Tao, a Beijing-based economist at UBS AG.
Financial institutions' yuan positions, accumulated from central bank purchases of their foreign exchange, fell 24.9 billion yuan in October, a PBOC report showed this week. The measure is an indication of capital flows.
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