Bank reserves 'may be cut again next year'

Updated: 2011-12-26 07:16

By Wei Tian (China Daily)

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The outflow of foreign capital, analysts said, will create room for the government to ease its monetary policies.

The central bank cut the reserve requirement by 50 basis points earlier this month, the first cut in nearly three years, to ease liquidity as inflation softened.

Wang Tao, head of China economic research at UBS Securities, said in a research note that the next cut may occur before the Lunar New Year, which falls on Jan 23.

"A decline in the trade surplus and capital outflows will not harm lending ability. And a reserve requirement cut by 200 basis points will be enough to generate enough liquidity, even if growth in foreign exchange stalls in 2012," Wang said.

But Wang said the central bank is not likely to lower the interest rate in the coming 12 months under any circumstances, even if the inflation falls to 3.5 percent, as UBS predicted.

"The central bank would manage its monetary policies mainly through adjustment of the money supply and line of credit," Wang said.

A report by Bank of America-Merrill Lynch said that the central bank may cut the requirement three times, totaling 150 basis points, to release 14 percent more lending which translates to about 7.6 trillion yuan.

Meanwhile, China is likely to raise the deposit rate by 25 points and the loan rate by 15 points, the report said.

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