China preserves ammunition as PBOC bucks reserve-ratio forecasts

Held off on a reduction in bank reserve requirements that some economists had predicted would come before a week-long holiday which ended last Saturday, suggesting officials are cautious on more monetary easing.Barclays Capital Asia Ltd., JPMorgan Chase & Co. and Industrial Bank Co. said last month that ratios were likely to fall ahead of the Lunar New Year festival, which boosts demand for cash. The central bank of China (PBOC) instead used reverse-repurchase contracts to add money to the financial system. Premier Wen Jiabao seeks to steer the world's second-biggest economy through a property market slowdown and the weakest export growth since 2009 without re-inflating asset bubbles or driving up consumer prices. The central bank has left benchmark interest rates unchanged for the past six months, while making a single cut to reserve requirements, the first since 2008, that became effective in December. 'The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,' said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire. Asian stocks fell today ahead of a meeting of European Union leaders in Brussels to discuss their sovereign debt crisis. Greece and its private creditors said Jan. 28 they expect to complete a deal in coming days after bondholders signaled they would accept European government demands for a bigger cut in their debt holdings. The MSCI Asia Pacific Index declined 0.9 percent as of 4:59 p.m. in Tokyo. Across the Asia Pacific region, New Zealand's central bank said that Governor Alan Bollard will quit in September and the Philippines reported that economic growth accelerated, with gross domestic product rising 3.7 percent in the fourth quarter, after a 3.6 percent gain in the third. In Europe today, Spain will report preliminary economic data for the fourth quarter and an index of euro-area confidence may rise for the first time in 11 months, according to the median estimate in a Bloomberg News survey of economists.
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