China moves cautiously on reserve requirements

Date: Monday 30 Jan 2012

Chinese stocks fell today on their first day of trading after the Lunar New Year Holiday. Of potentially large interest in this regard, Bloomberg is calling attention to how quite a few observers are interpreting the People’s Bank of China’s (PBoC) latest moves as being indicative of policy-makers’ caution when it comes to relaxing monetary policy.

That after the PBoC decided to inject 353bn yuan ($55.7bn) into the economy on the eve of the week-long holiday by means of 14 day reverse repurchase agreements (repos) instead of through a cut in banks’ required reserve ratios.

Thus, many economists are said to believe that Premier Wen Jiabao looks to cushion economic growth but that he may also be somewhat wary of re-inflating bubbles in some markets.

Despite all of the above, another cut in banks’ reserve ratios, following the one carried out in December, is expected in the coming weeks as the above ‘repos’ mature.

AB

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