Ma Jun, chief China economist for Deutsche Bank AG, comments on the People’s Bank of China’s decision to raise the reserve requirement for the nation’s lenders by 0.5 percentage points from May 18.
“The decision to hike the reserve requirement ratio may also suggest that the People’s Bank of China is relatively more cautious in raising interest rates, which have a direct impact on the real economy.
“After this hike, the reserve requirement ratio for large banks will reach 21%. This reflects the need for the central bank to sterilize the liquidity from the maturing of PBOC bills, resumption of trade surpluses from a deficit in the first quarter to a surplus of $11 billion in April, and continued capital inflows.
“The deceleration of IP growth reported yesterday as well as the views from within the government calling for ‘avoiding policy overtightening’ should have some influence on interest rate decisions. We expect one more rate hike in the remainder of this year.”