CHINA’S central bank will not rush to cut the amount of cash banks must hold as reserves, despite a liquidity squeeze ahead of the Lunar New Year, an assistant central bank governor has said, according to sources.

    The central bank “will not easily cut banks’ reserve requirement ratios (RRR),” Zhang Xiaohui told senior officials of policy banks and commercial banks at a recent meeting on liquidity management, said the sources with direct knowledge of the meeting.

    “On the one hand we should maintain reasonable and adequate liquidity in the banking system, on the other hand we should pay attention to the pressure on the Renminbi (yuan) exchange rate from excessively loose liquidity,” she said.

    Yi Gang, a vice governor of the central bank, told the same meeting the bank would keep the yuan basically stable against a basket of currencies.

    Yi blamed some Chinese financial institutions for betting on the yuan’s depreciation.

    The central bank has taken a flurry of steps, including intervening in currency markets and imposing capital control measures, to support the weakening yuan.

    Zhang said the central bank could use other policy tools to add liquidity to the banking system, as cutting reserves could send a strong signal on policy easing, according to the sources.

    Moves by the central bank to inject more than 600 billion yuan (US$91.19 billion) in liquidity ahead of the Lunar New Year holiday in February could substitute for a cut in the cash amount banks must hold as reserves, the central bank’s chief economist was quoted as saying last week.

    Zhang said the liquidity injections, via the three policy tools of the standing lending facility (SLF), the medium-term lending facility (MLF) and pledged supplementary lending (PSL), could be between 600 billion and 800 billion yuan.

    Liquidity often tightens ahead of the week-long holiday and the central bank usually injects large amounts of cash into the banking system before the festivities to keep rates steady.

    The first day of the Chinese Lunar New Year is Feb. 8.

    The central bank has cut interest rates six times since November 2014, and cut the amount of cash banks must hold as reserves, but such steps have had limited impact on economic growth. More easing steps are widely expected in coming months.

    China’s economic growth slowed to 6.8 percent in the fourth quarter, the weakest since the financial crisis, adding pressure on a government that is struggling to restore investor confidence.(SD-Agencies)