Trim in ratio may spark rally in stocks
By Hu Xiaocen |
May 14, 2012, Monday
|
Print Edition
Print Edition
SHANGHAI stocks may rise this week as the People's Bank of China cut the amount of cash that banks must set aside as reserves, pumping money into the financial system to bolster a slowing economy.
The central bank cut the reserve requirement ratio by 0.5 percentage point for the third time in six months, effective this Friday. The ratio for the biggest lenders will fall to 20 percent and that for medium and small banks will drop to 16.5 percent, the PBOC said in a statement on its website.
Financial institutions now hold about 84 trillion yuan (US$13.3 trillion) in total yuan deposits. The market estimated the cut in the ratio will unlock 400 billion yuan to 500 billion yuan for lending, ChinaNews.com reported yesterday.
After the previous two reserve requirement cuts, the key stock index gained 2.3 percent and 0.3 percent on the following trading days.
The Shanghai Composite Index shed 1.9 percent to close at 2,394.98 points last week, after a customs bureau report said China's export growth eased to 4.9 percent in April from a year ago, and down from 8.9 percent in March. In April the country's industrial production grew at the slowest pace of 9.3 percent since 2009.
However the recent cut may not guarantee a stock rally this week as Zhou Xiaochuan, PBOC governor, explained earlier that the cut was to hedge against changes in foreign exchange reserves.
"The ratio cut signals the economy is bottoming out," Ba Shusong, deputy director of the Finance Institute of the State Council's Development Research Center, said on his weibo, the Chinese version of Twitter, on Saturday.
The central bank cut the reserve requirement ratio by 0.5 percentage point for the third time in six months, effective this Friday. The ratio for the biggest lenders will fall to 20 percent and that for medium and small banks will drop to 16.5 percent, the PBOC said in a statement on its website.
Financial institutions now hold about 84 trillion yuan (US$13.3 trillion) in total yuan deposits. The market estimated the cut in the ratio will unlock 400 billion yuan to 500 billion yuan for lending, ChinaNews.com reported yesterday.
After the previous two reserve requirement cuts, the key stock index gained 2.3 percent and 0.3 percent on the following trading days.
The Shanghai Composite Index shed 1.9 percent to close at 2,394.98 points last week, after a customs bureau report said China's export growth eased to 4.9 percent in April from a year ago, and down from 8.9 percent in March. In April the country's industrial production grew at the slowest pace of 9.3 percent since 2009.
However the recent cut may not guarantee a stock rally this week as Zhou Xiaochuan, PBOC governor, explained earlier that the cut was to hedge against changes in foreign exchange reserves.
"The ratio cut signals the economy is bottoming out," Ba Shusong, deputy director of the Finance Institute of the State Council's Development Research Center, said on his weibo, the Chinese version of Twitter, on Saturday.
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