SHANGHAI (Reuters) – The modesty of a reduction in the amount of money Chinese banks must hold in reserves may reflect China’s central bank concerns about inflation and U.S. monetary tightening, making further rate cuts of interest less likely, analysts say.
The People’s Bank of China (PBOC) on Friday announced a 25 basis point (bp) cut in banks’ required reserve ratio (RRR) from April 25, freeing up about 530 billion yuan ($83.16 billion). ) long-term cash. He said the move would help banks support industries and businesses affected by the spike in COVID-19 cases.
While the cut was widely expected, it was less than the usual cut of 50 or 100 basis points and came after the central bank left its medium-term lending facility rate unchanged while rolling over maturing loans. friday.
Goldman Sachs analysts identified what “appeared to be the key considerations behind this more conservative decision.”
The PBOC seemed worried about ripple effects as other countries raised interest rates, they wrote. Other analysts have pointed to one such ripple effect: driving capital away from China, which a Chinese rate cut would make worse.
Moreover, according to analysts at Goldman Sachs, the PBOC seems concerned that lower interest rates will not have much effect on an economy in which demand for credit is weak and the outlook for inflation uncertain.
Given that these concerns were not expected to subside anytime soon, analysts no longer expected a cut in the central bank’s key rate or a further cut in the RRR. They added that a Wednesday cut to the prime lending rate, the benchmark for business and household loans, was unlikely.
Policymakers could be more inclined to stimulate growth with more fiscal measures and targeted easing through loans and rediscounts, they said.
Citi analysts said a small cut of 5 basis points in the 1-year loan prime rate on April 20 remains possible, but policymakers will prioritize credit expansion over debt reduction. interest rate.
A top Chinese regulator is encouraging some banks to lower deposit rate caps, two sources with direct knowledge of the matter said on Friday.
($1 = 6.3731 Chinese Yuan)
(Reporting by Andrew Galbraith; Editing by Bradley Perrett)