Targeted RRR cut expected to fuel real economy

The targeted reserve requirement ratio is expected to be cut by one percentage point in January to fuel the real economy, with domestic liquidity maintaining a relatively balanced status in the near future, China Securities Journal reported on Monday.

This year, the central bank is likely to announce a targeted RRR cut for the beginning of next year, which can effectively guide financial institutions to invest money in micro, small and medium-sized enterprises, private companies and innovative players in Q4, so as to meet the criteria of a targeted RRR cut, said Pan Xiangdong, chief economist with New Times Securities.

In terms of quantity, enterprises are meeting challenges in financing and increasing economic downward pressure, so the People's Bank of China, the country's central bank, may continue to maintain domestic liquidity at a "reasonably ample level" through various measures.

Pan said cutting the reserve requirement ratio has a great significance for monetary easing. The central bank may use tools including re-lending, rediscount, pledged supplementary lending, medium-term lending facility and open market operations this year and cut the reserve requirement ratio by one percentage point early next year.

In early October, the central bank announced an RRR cut for commercial banks by 1 percentage point, effective Oct 15, which has freed up 750 billion yuan ($108 billion) in liquidity, the report said.

The country's central bank also injected 403.5 billion yuan into the market via the medium-term lending facility to maintain liquidity on Nov 5.

At present, liquidity in China's monetary market is relatively ample, with interbank lending rates down significantly this year. Domestic liquidity is expected to maintain a relatively balanced level in the near future, said Zhang Ming, chief economist with Ping An Securities.

To further enhance the financial sector's ability and will to serve the real economy, policy coordination should be strengthened, monetary policy transmission channels should be unblocked and monetary policy tools and mechanisms should be innovated, the report said citing several experts' opinions.

The central bank reiterated the importance of the financial sector in serving the real economy at an insider PBOC meeting on Friday presided over by central governor Yi Gang, who asked relevant departments to properly implement the monetary and credit policy in a precise manner.

In the first 10 months, new yuan loans increased by 2.02 trillion yuan from the same period last year and growth was registered for the incremental value and growth rate of credit to small and micro-sized businesses in the same period, according to statistics from PBOC website.