RRR cut unlikely: analysts

Analysts on Wednesday ruled out the possibility of China cutting the reserve requirement ratio (RRR) as a moderate stimulus measure to pump up growth, following a report from the central bank on Tuesday that said stable policy would be maintained.

"There were some changes of wording in the central bank's Tuesday report, such as saying that China will be 'flexible' in using monetary tools to manage liquidity instead of saying it would make 'reasonable use' of those tools," Zhang Lei, a macroeconomic analyst with Minsheng Securities, told the Global Times on Wednesday.

"But the policy keynote in the report - that prudent monetary policy will be maintained - remains unchanged from the previous stance," Zhang said. "So a universal RRR cut is not likely to happen in the near future."

China will continue to implement a prudent monetary policy and maintain policy continuity and stability, the People's Bank of China (PBC) said in its first-quarter monetary report on Tuesday.

The country will stay focused on economic restructuring and move actively to maintain stability through pre-tuning and fine-tuning at the proper time, in order to create a stable monetary and financial environment for economic restructuring and upgrading, it said.

The report also said the central bank will be flexible in using monetary instruments - including open market operations and the RRR - to respond to economic fluctuations and changes in the financial sector.

The PBC's reiteration of its prudent stance suggests it does not intend to loosen policy significantly, said Zhang Zhiwei, chief China economist at Nomura Securities, in a research note e-mailed to the Global Times Wednesday.

Li Xunlei, chief economist and deputy CEO of Haitong Securities Co, told the Global Times Wednesday that the current monetary policy is tighter than the market had expected and there was no clear signal in the PBC report that there will be more policy easing.

In April, the central bank had announced a cut in the RRR for rural commercial banks at the county level by 2 percentage points and for rural credit cooperatives by 0.5 percentage points.

The targeted RRR cut was seen by many analysts as a sign of monetary policy easing.

The change of wording in Tuesday's report has also fueled speculation about possible policy easing.

The central bank had been referring to "reasonable use of monetary tools" in its report since the fourth quarter of 2012, but has changed to "flexible use of monetary tools," which it previously used at a time when it cut the RRR, news portal wallstreetcn.com said Wednesday, citing a report by CITIC Securities.

The possibility of shifting from a targeted RRR cut to a universal one is increasing, the report said.

The RRR for major banks is currently 20 percent.

Lowering the RRR is usually viewed as a policy stimulus measure, as it can have the effect of boosting lending. China last announced an overall cut in RRR in May 2012.

China reported growth of 7.4 percent year-on-year in the first three months, the weakest since the third quarter of 2012.

The China services Purchasing Managers' Index, an indicator of activity in the country's services industry, declined to 51.4 in April from 51.9 in March, HSBC said in a report Wednesday, adding to concerns about weak growth.

"The two preconditions for a cut in the RRR - a decrease in foreign exchange purchases by the central bank and tight monetary supply - do not exist at present. The central bank will not cut the RRR soon, at least not in the second quarter," said Zhang from Minsheng Securities.

"If the economy slows further, the central bank may slow down pace of some reforms such as the move toward removing the ceiling for deposit interest rates," he said.