MNI: PBOC Should Adjust Liquidity Through RRR, Officials say

By Archie Zhang

     BEIJING (MNI) - The People's Bank of China (PBOC) should provide liquidity

through adjusting the Reserve Requirement Ratio (RRR) instead of expanding its

balance sheet, according to an article by officials from the central bank.

     China's RRR is still relatively high, with significant room for adjustment

and strong operability, according to the article published in the December Issue

of China Bond and co-authored by Ruan Jianhong and Huang Jianyang. Both authors

work with the Financial Survey and Statistics Department of the PBOC. 

     Adjusting liquidity through the RRR has comparative advantages as the tool

can be applied to all commercial banks in China, according to the article. Other

tools such as MLF only target big banks.

     Commercial banks in China have accumulated CNY10.7 trillion in debts to the

PBOC as at the end of September 2019. The debts have been acquired through

participating in the central bank's market operations including repos and

re-financing, which has constrained  the PBOC from further expanding its balance

sheet.

     According to the authors, the RRR is a relative long-term tool. By lowering

the RRR, the PBOC doesn't have to continuously roll over the debts to offset the

maturities, the article said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MI$$$$]