Daily Management Review

Bank of China Could Mitigate the Requirement for Banks


The People's Bank of China (PBOC, the central bank of the country) is likely to reduce the reserve requirement for banks by 0.5-1 percentage point in the coming weekend, believes economist at HSBC in Hong Kong Julie Wang.

The signals of weakening of the Chinese economy, as well as a sharp reduction in balances in RMB banks accounts after the devaluation of the yuan require from the Chinese regulator easing of requirements to financial companies reserves, said Wang.

Business activity in the processing industry in China fell in August to its lowest level in 6 years, evidences published in Friday's preliminary index of purchasing managers Caixin Media and Markit Economics.

The value below 50 points indicates a reduction in production volumes. PMI has already been for half a year in this zone, increasing investors' concerns about the stability of the Chinese economy.

The central bank is necessary to mitigate the reserve requirements of banks by 0.5-1 points every month until the end of the year to stabilize the economy, says Wang.

PBOC twice lowered key interest rates and eased reserve requirements of banks in the last six months. Currently, the reserve ratio was 18.5%, and is still quite high by global standards.