Move would signal yuan maneuvering in the past two weeks is backfiring
By
LINGLING WEI
Updated Aug. 23, 2015 6:38 a.m. ET
BEIJING—The People’s Bank of China is preparing to flood the banking system with liquidity to boost lending, according to officials and advisers to the central bank, as its recent currency moves are squeezing yuan funds out of the market and renewing concerns over capital leaving Chinese shores.
The planned step—which involves cutting the deposits banks are required to hold in reserve—signals that the Chinese central bank’s exchange-rate maneuvering in the past two weeks is backfiring, forcing it to again resort to the reserve-requirement reduction, the same easing measure that so far has failed to help spur economic activity.
The move, which could come before the end of this month or early next month, would involve a half-percentage-point reduction in the reserve-requirement ratio, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans.
It would be the third comprehensive reduction in the reserve requirement this year. Another option being considered at the PBOC is to target the cut only at banks that lend large amounts to small and private businesses—the ones deemed key to China’s future growth—though such a strategy hasn’t proven effective in the past in channeling credit to those borrowers.
https://www.wsj.com/articles/china-poised-to-boost-banks-liquidity-to-counter-weaker-yuan-1440325663
