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Reserve ratio or interest rates cuts more likely in June: analysts

Xinhua, May 26, 2015 Adjust font size:

China is likely to announce another bank reserve requirement ratio (RRR) cut or interest rate cut in June, analysts told Xinhua on Tuesday.

Following record-low M2 expansion data in April, the central bank will probably make an additional four RRR and rates cuts to speed up banks' lending capacity. The earliest this will happen will be in June, said Haitong Securities chief analyst Jiang Chao.

M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 10.1 percent year on year to 128.08 trillion yuan (20.97 trillion U.S. dollars) at the end of April. The growth was below the government target of 12 percent for 2015.

Zhao Zhaoyi, researcher of China Macroeconomic Information Network, believes there is plenty of room for more RRR and rates cuts in the second quarter, citing continuing deflationary risks as an influencing factor.

The consumer price index (CPI), the main gauge of inflation, averaged 1.2 percent year on year in the first quarter of 2015, the lowest since the fourth quarter of 2009.

The Bank of China predicts that the CPI in the second quarter is likely to post a 1.3-percent increase, indicating a high possibility of more loosening measures in the second quarter.

China's central bank cut interest rates by 25 bps on May 11, the third rate cut in six months, in the face of inflationary pressure and economic headwinds.

RRR was slashed by 100 basis points on April 20, the second cut this year and the biggest reduction since November 2008, the height of the global financial crisis.

Meanwhile, greater attention should be paid to anticipatory adjustments and fine tuning, and the need for balance between controls and looseness in monetary policy should be stressed, according to an article in Monday's People's Daily, the flagship newspaper of the Communist Party of China (CPC). Endi