INVESTORS in China’s money markets are scaling back bets for a cut to banks’ reserve requirements before next month’s Lunar New Year holiday, reflecting a belief that authorities will avoid strong easing signals in the midst of an economic recovery.

The People’s Bank of China (PBOC) delivered reserve requirement ratio (RRR) cuts before the week-long holiday in 2019 and 2020 to boost banking system liquidity.

The festivities, which start Feb. 11 this year, traditionally see surging cash demand as households splurge on gifts and celebrations, and companies pay bonuses.

But as China steadily rebounds from coronavirus disruptions in 2020, RRR cuts are “neither necessary nor sensible,” said Lu Ting, Nomura’s chief China economist.

“Both the high current account surplus and strong capital inflows are replenishing base money, while the PBOC can use other low-key channels such as the medium-term lending facility (MLF) to add liquidity if necessary.”

MLF loans worth 300 billion yuan (US$46.37 billion) matured Friday and markets are paying close attention to how much fresh money the central bank will offer.

Apart from cash injections, several money market traders said the PBOC could revive the contingent reserve arrangement (CRA), introduced before the holiday in 2018, which lets banks dip into reserves to make up for liquidity shortfalls.

Song Xuetao, economist at Tianfeng Securities, expects a seasonal rise in cash demand of 1.6 to 1.8 trillion yuan ahead of the holiday. (SD-Agencies)