The People’s Bank of China will cut the reserve requirement ratio for banks by 0.5 percentage points, effective on February 24, the central bank said on Saturday.

That was a response to extra-tight liquidity and hiking interest rates on the markets last Friday, in line with Industrial Bank’s expectations in its monthly report last month, said chief economist Lu zhengwei.

That, added lu, opened room for a continuous cut in RRR; however, it wouldn’t necessary mean a excessive easing ahead.

Mr. Lu also ruled out the possibility of a cut in interest rate in a short time.

The central bank has targeted this year’s broad money supply (M2) growth at 14 percent, lower from previous year’s 16 percent, which means the PBoC has no intention of overhauling its monetary policies, said He Jun, a researcher with Anbound, a Beijing-based consultancy.

Based on current situation, a cut in RRR should be the biggest move for now and it is still far way from an interest cut, Mr. He said.

This cut is expected to release 400 billion yuan in liquidity in the banking system, according to Anbound. Last time China cut its RRR was on Nov. 30, 2011, the first in three years.

Source:caijing