Banks say China’s policy makers face pressure to cut lenders’ reserve requirements as soon as this month:

  • The recent interest-rate reduction (first in two years) has failed to lower borrowing costs between banks
  • The Shanghai one-month interbank offered rate (SHIBOR) is up 13 basis points to 4.20%since November 21, the day the one-year benchmark lending rate was decreased by 40 basis points
  • This contrasts with a drop of 113 basis points in July 2012, the last time the policy rate was reduced

Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group:

  • “Clearly, the increase in Shibor despite the rate cut shows fund tightness”
  • “Bank balance sheets are already tight and they need funds to ease the thirst. The reduction in reserve ratios is likely to take place this month and more will come in the coming year.”

ANZ, Bank of America Corp. and Credit Agricole CIB all forecast the People’s Bank of China will lower the reserve ratio

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