Business / Markets

RRR cut unlikely: economists

(Xinhua) Updated: 2014-05-28 09:27

BEIJING - A fully-fledged cut of the reserve requirement ratio (RRR) for banks is unlikely, as the central bank prefers targeted monetary tools, economists have said, as speculation mounts about such a dramatic move to heat China's lukewarm economy.

Faced with an economic slowdown, the People's Bank of China (PBOC) has been treading cautiously in its monetary policy shift. Instead of an RRR or interest rate cut, the central bank has resorted to measures such as "targeted" RRR cuts for rural banks and re-lending.

However, speculation was fuelled by Premier Li Keqiang saying last Friday during an inspection tour that China's economy still faces "relatively big" downward pressure and timely policy finetuning is needed.

While some analysts see a rising possibility of a RRR or rate cut, Peng Wensheng, chief economist of the China International Capital Corporation (CICC), said such a possibility is small.

There is a tendency for the central bank to resort to capital injection instead of RRR or rate cuts in easing the monetary policy, he said.

"Another explanation is the economic situation is not that bad, and the central bank prefers low-profile and targeted monetary easing. A RRR cut is not only high-profile, but also has too strong an influence," Peng added.

However, he expects the central bank to apply such an "indicative" move as a RRR cut only if the economic downward pressure continues to build.

In its research note, the CICC attributed the low possibility of a RRR cut to the fact that interest rates for interbank lending have been at a stable level that is remarkably lower than the same period last year.

The investment bank expects China's M2, a broad measure of money supply that covers cash in circulation and all deposits, to increase in May through more open market operations and finetuning.

RRR cut unlikely: economists

RRR cut unlikely: economists

Central bank in a monetary dilemma Money market funds must come under controls

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