China Still Has Room for Required Reserve and Interest Rate Cuts: Minsheng Bank

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Wen Bin (温彬), chief economist with China Minsheng Bank, says the Chinese central bank still has room to implement cuts to both the required reserve as well as interest rates, in order to further stabilise the economy.

“Reducing the reserve ratio and reducing interest rates plays an active role in stabilising growth, and in future there will still be considerable room for this,” said Wen to state-owned media.

“In August and September a large volume of medium-term ending facilities will be due, and interbank funds will gradually tighten, requiring that the central bank strengthen liquidity releases.

“It can achieve this by reducing the required reserve ratio to replace maturing MLF, unleashing long-term funds, and reducing the cost of funds in the banking system.

“Not only will this guide declines in the loan prime rate (LPR), it could also encourage financial institutions to increase their allocations to government bonds, reducing the financing and re-financing costs of local governments, and better employing the coordinated and cooperative roles of monetary policy and fiscal policy.”

Wen’s remarks arrive just after the People’s Bank of China (PBOC) convened the second quarter meeting of its Monetary Policy Committee on 24 June in Beijing.

The meeting flagged the implementation of stable and moderately flexible monetary policy, as well as ongoing reforms of the Chinese interest rate regime.