Ample room for cuts to reserve ratio, says Zhou
People's Bank of China governor Zhou Xiaochuan says there is 'ample room' for further cuts to the reserve requirement ratio of the country's major lenders.
But he stressed that any such action would be more about the central bank's management of liquidity than monetary easing.
However, Zhou's comments reinforced the market's expectation that the central bank will follow up last month's cut with another reduction in the reserve ratio - the amount of cash commercial banks must hold as reserves - to free up more money for lending, after disappointing data was released over the weekend.
'In theory, there is ample room for RRR cuts. But we need to take into consideration the different restriction factors, and we need to see the advantages and disadvantages of adjustment, especially its impact on financial flows,' Zhou told a news conference on the sidelines of the National People's Congress session.
'The RRR is over 20 per cent now. We have had much lower RRRs, such as the 6 per cent in the late 1990s, and there is even lower than that in some countries,' he said.
Recent data suggests the world's second-largest economy is losing steam, raising the likelihood of more monetary easing by Beijing soon.
On Saturday, the customs office said the world's biggest exporter recorded its largest deficit in at least a decade. This came 24 hours after the national statistics agency said although inflation cooled last month, retail sales, capital investment and industrial output fell below forecasts.
Since December, the government has taken steps to fine-tune its two-year-old policy of macroeconomic tightening to take into account global economic changes. This has included two cuts in the reserve ratio.
However, Zhou said the adjustments were not necessarily indicative of monetary easing or tightening but were more related to the central bank's management of liquidity, such as its purchases of foreign exchange.
Zhou also dismissed suggestions that the central bank's recent moves to cut the reserve requirement ratio were designed to boost confidence in the stock or property markets.