China’s central bank cut reserve requirements for five rural credit cooperatives in eastern Zhejiang Province, Market News International said, citing three unidentified sources in the interbank market.
Bond traders said the reduction to 16 percent from 16.5 percent would have a tiny impact on overall liquidity because of the small size of the banks, the news agency reported yesterday. The central bank’s press office declined any immediate comment.
The city of Wenzhou in Zhejiang has been the focus of complaints by small businesses that they are facing a credit squeeze after the government tightened monetary policy to cool inflation and the property market.
The Shanghai Composite Index has fallen 14 percent this year on concern that China’s economy faces a deeper slowdown.
The move in Zhejiang may be the beginning of a wider easing of reserve requirements, Wee Khoon Chong, a strategist at Societe Generale SA in Hong Kong, said in a note.
“This specific selective easing is specially aiming at Wenzhou,” Wee said.
Inflation that is higher than Beijing’s target may limit the room for interest-rate cuts even as Europe’s debt crisis threatens exports and the property market cools. Reserve ratios for the biggest banks stand at 21.5 percent, according to Bloomberg data.
Data from the People’s Bank of China (PBOC) indicated “less liquidity in the interbank market than we had expected,” Dariusz Kowalczyk, a Hong Kong-based strategist from Credit Agricole, wrote in an e-mailed note yesteray. “This raises the odds” of a reserve-ratio cut this month or next, he said.
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