Zhou Signals China Rate Cut Possible After Injecting Cash

People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible after the central bank stepped up temporary cash injections this month.

“Use of either tool can’t be ruled out,” Zhou said to reporters today in Beijing when asked whether the recent frequent use of reverse-repurchase transactions means the PBOC will make less use of reserve-ratio and interest-rate tools. He didn’t elaborate.

The remarks leave the door open for further monetary stimulus after the PBOC added 220 billion yuan ($34.6 billion) to the banking system via reverse-repurchase agreements yesterday, tempering speculation the reserve-requirement ratio will be reduced. China lowered interest rates in June and July for the first time since 2008 and has made three cuts in the ratio starting in November as economic growth slowed.

Chinese Premier Wen Jiabao said last week that easing inflation allows more room to adjust monetary policy and positive signs are emerging in the economy, expressing confidence after July data showed a further slowdown in growth. State television reported Wen as saying there’s “growing room for monetary policy operation.”

At the same time, the nation’s slower-than-forecast cuts in banks’ reserve requirements show authorities are yet to shake their concern inflation will quicken, three months after Wen shifted priorities to boosting growth. China has left the reserve ratio for the biggest banks at 20 percent since mid-May and signaled it will maintain property-market restrictions to curb home-price gains.

--Zheng Lifei. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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