Amount of Money in China’s Local Banks

China is likely to lower within the next few weeks the amount of money local banks must keep in reserve to increase liquidity in the market, a report said Wednesday.

The report by HSBC said that the central People’s Bank of China (PBOC) will keep moving toward easing its monetary policies by cutting reserve ratios in the coming weeks in order to kick up the Chinese economy’s growth momentum starting in the second quarter.

In early December, the PBOC implemented a 50 basis-point cut in the required reserve ratio (RRR), as the world’s No. 2 economy has started to see inflationary pressure ease and economic growth slow.

“The widely-expected reserve ratio cut is likely to be postponed to the weeks after the Chinese New Year, as the PBOC injected 352 billion yuan (US$ 55.6 billion) liquidity via reverse repurchase arrangements in open market operations,” said Qu Hongbin, chief China economist at HSBC.

A repurchase agreement, or a repo, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price with the difference effectively representing interest, which is called the repo rate. A reverse repo refers to the other end of a transaction, which is to buy the securities and agree to sell it in the future.

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