China’s central bank to cut RRR in Jan 2019
PBC, wary of further slowdown, maintains reasonable liquidity
China’s central bank is likely to cut the reserve requirement ratio (RRR) in January 2019 amid continuing downward pressure, as a move to improve liquidity and support the real economy, experts forecasted on Monday.
The People’s Bank of China (PBC) has been all-out to maintain liquidity at a reasonably abundant level via various tools such as pledged supplementary lending and a medium lending facility, said Pan Xiangdong, chief economist of New Era Securities. As the downward pressure builds up, the monetary policy focuses more on stabilizing the economic growth and tackling companies’ financing difficulties. “In terms of quantity, the central bank will probably move to cut the RRR, use relending and rediscount quotas and other tools to inject liquidity,” he said.
“As the RRR cut will have significant impact on the market, it’s highly likely that the central bank will cut around 1 percentage point in 2019,” Pan told the Global Times on Monday.
China’s GDP growth slowed to 6.5 percent year-on-year in the third quarter due to both internal and external pressure, compared with growth of 6.7 percent in the second quarter. Still, it remains on track to reach the annual growth target of 6.5 percent in spite of growing downward pressure.
Pan also predicted that it is possible that the PBC will cut the RRR before the end of this year, which will lead banks to give loans to private companies, micro and small-sized enterprises and innovative firms.
“We’re now nearing the bottom of ‘L-shaped’ growth, and the risks of deleveraging and the impact of the ChinaUS trade war are constraints on further growth,” Lou Jiwei, former minister of finance, told a forum in Beijing on Sunday.
The monetary policy will remain stable and sound, but to deal with rising uncertainties, it is highly likely to keep a stable and slightly loose monetary policy, Liu Xuezhi, an economist at the Bank of Communications, told the Global Times.
“However, since the major task is tackling debt risks, the policy will not be a full-blown easing to inject a large amount of cash into the market,” he said.
The PBC cut the RRR by 100 basis points starting from October 15, unleashing about 750 billion yuan ($109.2 billion) into the market, which is the fourth reserve ratio cut since the beginning of this year.