CHINA CAUTIOUS ON MONETARY EASING

CHINA PRESERVES AMMUNITION WITH RESERVE-RATIO ON HOLD: ECONOMY

Bloomberg News

Business Week, January 30, 2012

China held off on a reduction in bank reserve requirements that some economists had predicted would come before a week-long holiday ending Jan. 28, suggesting officials are cautious on more monetary easing.

Barclays Capital Asia Ltd., JPMorgan Chase & Co. and Industrial Bank Co. said this month that ratios were likely to fall ahead of the Lunar New Year festival, which boosts demand for cash. The central bank instead used reverse-repurchase contracts to add money to the financial system.

Premier Wen Jiabao seeks to steer the world’s second- biggest economy through a property market slowdown and the weakest export growth since 2009 without re-inflating asset bubbles or driving up consumer prices. The central bank has left benchmark interest rates unchanged for the past six months, while making a single cut to reserve requirements, the first since 2008, that became effective in December.

“The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire.

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