Another RRR cut needed for liquidity

The People's Bank of China (PBC) will still need to cut the reserve requirement ratio by 50 basis points in February facing tightened liquidity caused by this week's maturity of the capital injected before the Chinese Lunar New Year, according to financial data provider Wind Sunday.

The PBC conducted a series of 14-day reverse-repo operations and injected 352 billion yuan ($55.58 billion) into the open market in the week before the week-long holidays.

However, the reverse-repo can only serve to alleviate the capital restraint temporarily, and is set to mature this week.

Meanwhile, only 1 billion yuan of central bank bills will mature at the beginning of February, and with no further operations conducted, the PBC will drain a total of 351 billion yuan from the market this week.

"In total, no more than 20 billion yuan of capital will mature in February, falling short of the actual market demand at a time of the year when banks are tending to issue more loans to buoy the real economy," Sheng Hongqing, chief economic analyst at China Everbright Bank, told the Global Times.

"Traditionally, it is rational to issue more new loans in January and February, as enterprises need more capital to settle accounts and conduct business," Sheng added.

With a lower RRR, banks will have more money available for new lending.

Lu Zhengwei, chief economist at Industrial Bank, said that around 1.1 trillion to 1.2 trillion yuan of new loans are predicted to be issued in January, "this is also in rhythm with this year's target of 8 trillion yuan ($1.27 trillion) in new loans."