People's Bank of China to inject liquidity into market

The mainland's central bank will ease its monetary policy next year, with the amount banks are expected to keep in reserve to be cut one or two times, the Bank of China forecast yesterday.

BOC, the country's fourth-largest lender by market value, said in a report the People's Bank of China would cut banks' reserve requirement ratio to inject liquidity into the money market. The ratio for larger banks now is 20 per cent, after a 0.5 percentage point cut in May.

"The general direction of prudent monetary policy will be slightly looser than that in 2012," the BOC said.

The central bank would still prioritise reverse repo, a short-term lending facility, as a tool to control liquidity in the money market and reserve requirement ratio cuts would be a second choice. An interest rate cut would be unlikely next year.

Economists mostly expect an accommodative monetary policy for next year. HSBC said in a report last week the central bank would cut the reserve ratio by a percentage point next year, but concern over inflation would make an interest rate cut unlikely.

New yuan-denominated loans this year would reach the government target of 8 trillion yuan (HK$9.9 trillion) and further increase to 8.5 trillion yuan next year, BOC said.