Bloomberg News

China Ratio Cut Doesn’t Signal Policy Shift, Credit Suisse Says

December 01, 2011

Dec. 1 (Bloomberg) -- China’s reduction in reserve-ratio requirements for banks is part of monetary policy fine-turning and not the start of a reversal of the official “prudent” stance, Credit Suisse Group AG said.

The cut is “aimed at addressing the excessively tight liquidity in the banking system,” Dong Tao, analyst at Credit Suisse, wrote in a report dated yesterday. The central bank may lower the requirement once more to 20.5 percent and not “much further” as liquidity conditions of the “overall economy” are “not tight.”

The government is still likely raise the one-year lending and deposit rate by 50 basis points in 2012, according to the note. The recent decision to raise electricity tariffs will likely add to December inflation, with a second-round effect occurring throughout next year, the analyst wrote.

“Before the Economic Working Conference in early December, the government’s official policy stance remains to be prudent on the monetary side and pro-active on the fiscal side,” he said.

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net


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