Credit Suisse economists expect a further 50 basis point cut in China’s reserve requirement ratio (RRR) for banks in the first half of 2022, given the Asian economy is starting to ease policy while other countries are tightening.
China’s central bank had last month cut the RRR, or the amount of cash that banks must hold as reserves, releasing 1.2 trillion yuan ($188.7 billion) in long-term liquidity to bolster slowing economic growth amid persistent Covid-19 cases.
The average RRR for financial institutions stands at 8.4%, Liu Guoqiang, vice-governor of the People’s Bank of China, said last week, adding that there was still room for the central bank to cut RRR further.
Credit Suisse also raised its rating to ‘overweight’ on Chinese equities, from ‘benchmark’ earlier, with relative earnings revisions seen for the tech sector and wider market.
“We can see that excess liquidity in China is starting to improve and Chinese equities tend to perform as this happens,” Credit Suisse economist Andrew Garthwaite said in a note.
The brokerage expects 5.9% GDP growth in 2022, higher than consensus prediction of 5.2%.
The US Federal Reserve on Wednesday said it is likely to raise interest rates in March and reaffirmed plans to end its bond purchases that month.
- Reuters, with additional editing by George Russell
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