Negative real deposit rates in China signal need for caution in 2012
Slowing activity and high inflation show up weaknesses in China’s economy while anticipated reform to the financial system together with global economy uncertainty create challenges for its economy and banking sector. January 11, 2012 | Guan Chen HaoIn 2011, the Chinese economy showed signs of slowing down. The escalation of market fears of a hard landing in China were likely triggered by the European debt crisis, the weak US economy and a multitude of domestic challenges. The World Bank has lowered its GDP growth forecast for China to 9.1% for 2011 and 8.4% for 2012. Along with cooling economic growth, China's inflation is expected to decline next year. The consumer price index (CPI) is forecasted to drop as low as 3% in 2012. In terms of money and credit supply, the People's Bank of China (PBoC) announced on November 30th that it will lower the required reserve ratio (RRR) by 50bps, which will lower the RRR for big banks to 21% and that of small banks to 19%. This cut should release approximately $62.2 billion of liquidity into system and benefit smaller banks with high loan-to-deposit ratios. The annual Central Economic Work Conference laid out an economic blueprint for China for 2012 and pledged to maintain economic stability. Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
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