SHANGHAI (Reuters) - An adviser to China’s central bank has flagged that China’s central bank could reduce the amount of cash banks need to hold, saying such cuts to the reserve requirement ratio would be normal given the sharp drops in its foreign exchange reserves.
Fan Gang, director of the National Economic Research Institute and a member of the People’s Bank of China’s (PBOC) Monetary Policy Committee, made the comments in an interview with financial magazine Yicai published late on Sunday.
“Our foreign exchange reserves have reduced... and could still fall further, if this happens, we have to cut our reserve requirement ratio accordingly if not we will have insufficient cash,” he said.
China’s foreign exchange reserves have fallen to just above $3 trillion as the central bank intervened to support a weakening yuan.
Fan, however, said a cut in the RRR would be normal in the context of the fall in foreign reserves.
A cut would also contrast with the PBOC’s shift to a tightening bias in recent months as it seeks to use more targeted measures to contain risks in the financial system, after years of ultra-loose settings. Most analysts do not expect a shift back to looser conditions unless there is a sharp drop in economic momentum.
Fan also added that he viewed the fall in China’s foreign exchange reserves as a positive thing, saying that the yuan was increasingly becoming a global currency, which reduced the need for massive reserves.
Reporting by Brenda Goh; Editing by Sam Holmes