2014-12-27

PBOC Rumored Easing Plan

The PBOC is rumored to be mulling a change to how deposits are classified, a move that would be equivalent to a 1.5% drop in the reserve ratio requirement (RRR), triple the initial 0.5% drop that was reported.

21st CBH: 传非银同业存款不缴准 相当降准1.5百分点

PBOC mulls plan to ease liquidity requirements
The banking sector sources said the PBOC, during a meeting with domestic financial institutions, revealed it is planning to include savings held by banks for non-deposit-taking financial institutions into banks' deposits, which will expand the base for calculating LDRs.

Under the current rules, Chinese banks are allowed to lend up to 75 per cent of their deposits.

According to the sources, 24 major financial institutions were told at the meeting that even if interbank deposits are included in the base, they may not need to set aside additional reserves, leaving more liquidity available for lending and investment.

The move is seen as another attempt to reinvigorate productive business investment without resorting to an across-the-board cut to reserve requirement ratios (RRR).

A 50-basis-point cut to the RRR is estimated to pour 2.4 trillion yuan ($386.65 billion) into the system after taking into account the money-multiplying effect of fresh lending on the net money supply.

A potential $1 trillion (7.2 trillion yuan) boost in credit for 2015. Assuming a healthy credit cycle......

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