Photographer: Qilai Shen/Bloomberg

China Reserve Ratio Cut No Longer Expected This Year

  • Factory prices to increase 1.8% this quarter: Bloomberg survey
  • Economists project faster expansion, weaker exports and retail

China’s central bank is no longer likely to lower the required reserve ratio for major banks this year as producer prices continue rising to a fresh five-year high, economists said.

The People’s Bank of China will leave the reserve ratio unchanged at 17 percent through year-end, according to a Bloomberg survey of economists conducted Nov. 21-28, instead of the quarter point cut forecasters projected in the October survey. They still estimated the rate will be cut to 16.5 percent in the first quarter of next year.

The producer-price index, which snapped four years of deflation in September, will finish the year rising 1.8 percent from a year earlier, economists said, more than double their estimate for a 0.8 percent increase in last month’s survey.

Read more: China mulls previously unthinkable price hikes

The central bank has stabilized growth after two years of easing that included keeping the benchmark interest rate at a record low for more than a year and five cuts to the RRR, the most recent in February. With the economy steady, the PBOC has quietly tightened monetary conditions in recent weeks by cutting back on seven-day open-market operations.

That’s the latest sign of selective tightening by the PBOC that’s reinforced the views of many economists that China has turned the corner away from monetary stimulus. The Bloomberg Intelligence Monetary Conditions Index remains near a four-year high.

Read more: PBOC operations quietly hike borrowing costs

Economists also raised their growth estimate for the current quarter to 6.7 percent, up from 6.6 percent in last month’s poll. That would be the fourth straight quarterly expansion at that pace, and comfortably above the government’s 6.5 percent growth objective for 2016.

Forecasts for exports fell in the latest survey. Shipments will drop 4.4 percent this quarter, compared with the 1 percent decline seen last month. Economists also cut estimates for retail sales growth to 10.2 percent growth year-on-year from 10.4 percent.

— With assistance by Xiaoqing Pi, and Cynthia Li

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