China’s requirement for how much cash banks must hold as reserves is “very high” and should be reduced at an “appropriate time,” a senior banking regulator said, according to a media report.
Other financing tools can be used to manage the money supply after easing the required reserve ratio, China Banking Regulatory Commission official Yu Xuejun (於學軍) said at an event in Beijing, Shanghai Securities News reported yesterday.
New monetary tools, such as the medium-term lending facility (MLF), are best used after a cut, not before, Yu was quoted as saying.
The People’s Bank of China has held the required reserve ratio at 17 percent since February after four cuts last year.
It will be reduced to 16.5 percent in the fourth quarter of next year, then 16 percent in the first quarter of 2018, according to a Dec. 9 to Dec. 15 Bloomberg survey of economists.
The central bank started to use medium-term lending facility in 2014 to channel low-cost funds into banks while avoiding conditions that would fuel asset bubbles.
It also introduced the pledged supplementary lending tool, which steers cheap credit to state-backed policy lenders, such as the China Development Bank, to support efforts such as shantytown renovation and water projects.
Lowering the ratio lets banks lend more, which boosts credit expansion.
Frequently reducing the ratio can reinforce expectations for monetary easing, which would add to downward pressure on the yuan, the central bank said in its second-quarter monetary policy execution report.
Yu leads a panel responsible for oversight of major state-owned financial institutions, according to the commission’s Web site.
“The central bank has been injecting liquidity through open market operations and MLF,” said Gao Yuwei (高玉偉), a researcher at the Bank of China Ltd’s (中國銀行) Institute of International Finance in Beijing. “We believe it will continue to use that combination to contain financial risks and cut leverage.”
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