Analysts anticipate further cuts to the reserve requirement ratio this quarter ahead of the annual liquidity squeeze during the Spring Festival season, while China’s central bank continues its attempts to bolster domestic demand.
Demand for new funds will hit nearly Rmb 4.3 trillion ($625 billion) in January, according to Citic Securities, China’s largest securities firm, and Bloomberg figures.
The first two months of the year traditionally see a spike in withdrawals by households preparing to give cash-filled red envelopes for the Chinese New Year celebrations.
Citic also forecasts that corporate tax payments and maturing interbank debt will also shrink liquidity this month. Bloomberg calculates that mainland lenders will pay back Rmb 822 billion in short-term debt and another Rmb 390 billion to the central bank. Taxes could withdraw Rmb 1.2 trillion from circulation, said Citic.
The People’s Bank cut the minimum capital requirements of commercial banks four times in 2018, to stimulate lending as an economic slowdown took hold. Earlier this week it announced more support by widening the eligibility for lower reserve requirements of banks lending to small and micro enterprises.