Bank of China expected to cut Reserve Rate

Expectations on cuts in Reserve Requirement Rates (RRR) in China are rising as the country had seen the second monthly drop in funds outstanding for foreign reserves this year in July.

The latest statistics by People’s Bank of China, the central bank, showed that the fund outstanding lost 3.82billion yuan from the previous month, the second monthly drop this year after April’s 60.6billion yuan drop.

The decline is a sign that the central bank is becoming less passive in money supply, analysts explained, adding that the central bank will continue with moves to increase liquidity while another cut in Reserve Requirement Rate in August is highly expected.

Narrowing trade surplus, lower willingness for settlement due to weaker expectations on RMB appreciation and capital outflow are responsible for the decline in funds outstanding for foreign reserves, a researcher at Huachuang Securities’ research center said.

There are great chances that the central bank will lower the RRR further in August while the funds outstanding for foreign reserves are likely to continue the falling trend,In a move to support liquidity, the People’s Bank of China injected 50 billion yuan into the money markets last week through reverse bond repurchase agreements, he added.

Statistics showed that the aggregate funds outstanding reached 25.65trillion yuan at the end of July.

via ECNS

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza