China To Add Reverse Repo, Cut RRR to Raise Liquidity

China’s central bank pledged to ensure adequate availability of cash in the financial system by using tools including reductions in the reserve-requirement ratio, state media reported.

Authorities will “appropriately take targeted liquidity management actions” based on circumstances including foreign- capital inflows and funding demand, the official Xinhua News Agency said in a report late yesterday on an interview with an unidentified person at the People’s Bank of China. Options include adding cash through reverse-repurchase operations and cutting required reserves, Xinhua said.

The report reinforced economists’ forecasts for the government to take steps in coming months to keep credit flowing after economic growth slowed last quarter to the least in almost three years. Liquidity in the banking system remains adequate and the central bank will keep implementing “prudent” monetary policy, Xinhua said.

“This is a clear ‘open mouth operation’ through which the PBOC sent the market a signal that further loosening measures will be rolled out,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc., said in a research note today. Authorities may lower the reserve-requirement ratio twice more this year, including next month, Zhang said.

The benchmark Shanghai Composite Index fell 0.1 percent at the 11:30 a.m. local-time break.

Bloomberg

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