Beijing unlikely to cut banks' buffer

Even as the mainland economy shows signs of weakness, the central bank is unlikely to cut banks' reserve requirement ratio in the near term to spur growth, a tool it has put on hold for almost two years, some economists say.

The economic conditions are not that worrying and market liquidity continues to be sufficient, making ratio cuts unlikely, analysts say. However, the currently high ratio might eventually go down should there be large capital outflows, they warn.

A Reuters report, citing unnamed sources involved in internal policy discussions, said the People's Bank of China was prepared to cut the amount of cash banks must keep as reserves if economic growth fell below 7.5 per cent and inched towards 7 per cent.

Since May 2012, the reserve requirement ratio at major mainland banks has stayed as high as 20 per cent. But several noted researchers told the South China Morning Post that Beijing's pursuit of the administrative tool to adjust the availability of funds was unlikely in the near term as the authorities were working on more market-driven initiatives towards a less regulated system.

"The economy is surely facing downward pressures. China's monetary policy may be fine-tuned to protect growth," said Zhu Baoliang, a vice-director at the Economic Forecasting Department of the State Information Centre, a government think tank. "However, there's no need to adjust the reserve ratio given that market liquidity is neither too tight nor too loose."

Exports fell by the most last month since the global financial crisis, while manufacturers' surveys also showed a dimmer outlook. But money supply has stayed consistent, with M2 up 13.3 per cent at the end of last month.