Will China soon cut banks' reserve ratio further?

Analysts weigh that an RRR cut is still needed considering liquidity conditions.

Reuters reported that China’s central bank is expected to make another reduction on banks’ cash reserve requirements soon to boost liquidity amidst the country’s economic slowdown paired with growing market speculation over another policy, according to analysts.

Chat groups on Chinese social media platform WeChat shared what appeared to be a paragraph pasted from a story by the official Xinhua news agency saying that the People’s Bank of China (PBoC) had announced a cut in the reserve requirement ratio (RRR), to take effect on April 1. However, the PBOC denied the reports in its official account in Weibo.

“The timing of the RRR cut is important to interbank interest rate movements, it is therefore (necessary that) the central bank clarify quickly,” ING Greater China economist Iris Pang said, maintaining her call for an RRR cut in the first two weeks of this month.

Also read: Chinese banks brace as more reserve cuts loom to boost credit-short SMEs 

This was echoed by Raymond Yeung, ANZ’s chief economist for Greater China. “We believe that the PBOC will cut the RRR again in mid-April. Based on our research on liquidity conditions, an RRR cut is still needed. We will not change our expectations for the RRR cut just because of this announcement.”

In a report by the state-run Economic Information Daily, former PBoC official Sheng Songcheng said that he sees room to lower the reserve ratio further, and that such a move is possible.

“(The central bank) will first gauge economic data from the first quarter to decide whether to cut the RRR. If indicators suggest the economy has already stabilized or is about to stabilize, the necessity of lowering the RRR is not huge,” Sheng was quoted as saying.

Here’s more from Reuters.