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People's Daily Online>>China Business

Monetary easing may be on cards

By Wang Xiaotian (China Daily)

13:09, November 25, 2011

A customer leaves the Lucheng Rural Cooperative Bank in Yiwu, Zhejiang province. Analysts expect China to loosen its monetary policy and say the nation's macroeconomic stance might change during the annual Central Economic Work Conference. Zhou Junxiang / For China Daily

BEIJING - Monetary-loosening measures by the Chinese government are imminent, and the tone of its macro policy may change during the nation's annual Central Economic Work Conference, which is scheduled to begin in December, according to analysts.

Six rural credit cooperatives in Zhejiang province will see a 50 basis point reduction in the reserve-requirement ratio (RRR) to 16 percent, effective from Friday, the Xinhua News Agency reported on Wednesday, citing Hangzhou branch of the People's Bank of China (PBOC), the central bank.

The move is being viewed by some observers as a signal of lowering the RRR for some other lenders, and indicates limited loosening of monetary policy.

However, the Hangzhou branch of the PBOC said the reduction is merely a restoration of the RRR to a normal level among these banks, and should not be understood as a general cut.

A year ago, the PBOC implemented a 50 basis point increase in the RRR for 20 rural cooperative banks nationwide, including six in Zhejiang, because they didn't make enough agriculture-related loans.

"There is the possibility of a cut in the RRR in the first quarter (of 2012), and the tone of macro policy will change during the Central Economic Work Conference," said Huang Jifa, deputy head of investment banking at Industrial and Commercial Bank of China Ltd, as quoted by Reuters on Thursday.

Calls for a loosening of the monetary stance grew after the preliminary HSBC Purchasing Managers' Index (PMI), a main gauge of manufacturing activity, dropped to 48 in November from 51.1 in October, the lowest level since March 2009.

On Thursday, Huang Libin, an official from the Ministry of Industry and Information Technology, said that growth of China's industrial output in 2012 may be 1 to 2 percentage points lower than this year.

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