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China Central Bank may Cut Reserve Requirements with Open Market Operations Halted

01-05 14:50 Caijing
China Central bank is likely to cut the reserve requirements for banks before the traditional Chinese lunar New Year holiday, which falls on January 22-28, as the bank halted open market operations again Thursday.

China Central bank is likely to cut the reserve requirements for banks before the traditional Chinese lunar New Year holiday, which falls on January 22-28, as the bank halted open market operations again Thursday.

At the same time, Chinese banks are facing increasing pressures to set aside reserves as required with tightening liquidity ahead of the New Year.

Interbank borrowing rates (Libor) at the turn of the year picked up again after a temporary decline, with one-week Libor rose 48.34 basis points to 4.5042% on January 5.

Markets have been anticipating a cut in the reserve requirement ratio while the expectation was further underpinned by the central bank not releasing liquidity into the market.

The first adjustment in monetary policy will emerge before the lunar New Year, said Bao Qing, a macro-analyst with Donghai Securities.

Decreasing inflation has spared room for the normalization of monetary policies, despite a possible seasonal pick-up in the last month of 2011 and the January in 2012,which however, could not alter the downward trend of inflation, Bao added.

The central bank may cut reserve requirements this weekend or the next week, according to researcher Shi Lei with Ping’an Securities.

Policy makers have signaled recently to “fine-tune” its monetary policy depending on changing timing and situation, while keeping it “prudent”.

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