China Likely to Cut Bank Reserve Ratios Soon: Analysts
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Assistant Producer, CNBC Asia
China’s central bank is likely to announce further cuts to banks’ reserve requirement ratios to boost slowing growth, a number of analysts told CNBC on Wednesday, a day after the country’s premier warned of a "difficult" period ahead for the economy.
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In comments published on Tuesday, Wen Jiabao also said the government would fine-tune monetary policy to deal with a slowdown in 2012.
Three of the four analysts CNBC spoke to, believe the central bank could slash the reserve requirement ratio (RRR) by up to 50 basis points before the Chinese New Year holiday, which falls on January 24th and 25th. One of the analysts said a RRR cut could come as early as this week.
“It is likely they will allow the liquidity in the system to rise going into the Chinese New Year to facilitate… and encourage a general feeling of well being,” Andrew Sullivan, Principal Sales Trader at financial services firm Piper Jaffray Asia Securities told CNBC on Wednesday.
The reserve ratio is the percentage of bank deposits, which need to be parked with the central bank. China last cut its RRR for banks by 50 basis points on November 30th, reducing the ratio to 21 percent for large banks. Analysts said that helped free up $61 billion in funds for banks to lend.
In addition to monetary easing, Eddie Tam, CIO at the hedge fund manager Central Asset Investments said the government was likely to provide further stimulus measures in the form of tax cuts for small and medium sized enterprises (SMEs) and incentives to boost consumer spending.
Piper Jaffray’s Sullivan also expects measures to boost consumer spending, but he says the government will try and make sure the money doesn’t find its way to the property sector, which it has been trying to cool.
A cut in the RRR will boost market sentiment, Dickie Wong, Executive Director at Kingston Securities told CNBC. As a result, he recommends investors increase exposure to the country’s retail sector.
He said he was bullish on jewelry retailers including Chow Tai Fook [1929.HK 14.76 
0.20 (+1.37%) 
], Chow Sang Sang [0116.HK 17.50 
-0.18 (-1.02%) ] and Emperor Watch & Jewellery [0887.HK 0.86 -0.04 (-4.44%) ] as well as luxury brands such as Prada [1913.HK 32.30 -1.05 (-3.15%) ], and BMW’s Chinese partner Brilliance Automotive [1114.HK 8.36 0.02 (+0.24%) ].
