Banks can use reserves to shore up Spring Festival liquidity in China

The People’s Bank of China has decided to set up an arrangement for the temporary utilization of reserves, so as to meet the demand of temporary liquidity arising from commercial banks’ large cash investment prior to the Spring Festival, the Economic Information Daily reported.

National commercial banks are allowed to use a statutory deposit reserve of no more than two percentage point for a period of 30 days when there is a liquidity gap during the Spring Festival.

Li Qilin, the chief macroeconomic researcher at Lianxun Securities, said this is expected to release up to 1.8 trillion yuan (US$276.62 billion), based on the amount of publicly listed banks’ deposits for the first three quarters of 2017.

A research paper conducted by Shenwan Hongyuan Securities shows the temporary arrangement will significantly improve the stability of short-term interest rates during the major holiday.

The new rule has taken effect from Monday.

(ASIA TIMES)