China’s central bank to cut reserve ratio again to add liquidity, aid growth: analysts

China’s central bank is expected to further cut the amount of cash that commercial banks must hold as reserve by another half a percentage point in December to inject more liquidity into the market and also shore up economic growth, analysts said.

The window to reduce the reserve requirement ratio (RRR) is open because the government has stepped up the issuance of bonds, combined with the seasonal rise of liquidity and maturity of the medium-term lending facility, Citic Securities economists said on Monday.

“The central bank may also use various tools, such as buy-back reverse repurchase agreements and government bond purchases, to stabilise market liquidity,” they said.

The average RRR for Chinese banks stood at 6.6 per cent as of September 27, with larger institutions required to hold 8 per cent of their deposits as reserves, while medium-sized banks must hold 6 per cent and small banks must hold 5 per cent, according to PBOC.