China should cut RRR, widen yuan band in 2013-report quotes think-tank

BEIJING Sun Dec 30, 2012 10:14pm EST

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BEIJING Dec 31 (Reuters) - China should cut banks' reserve requirement ratios (RRR) in 2013 to support economic growth while widening the yuan's floating range to make it more flexible, the head of the cabinet's think-tank said in comments published on Monday.

Chinese leaders have promised to maintain a prudent monetary policy and pro-active fiscal policy in 2013, leaving room for manoeuvre in the face of global economic risks while deepening reforms to support long-term growth.

"We should keep appropriate base money growth through various measures, cut RRR at the proper time based on changes in monetary conditions," the China Securities Journal quoted Li Wei, head of the Development Research Centre (DRC), as saying.

Li is a top government adviser and it is unclear if his views will be heeded by policymakers.

The People's Bank of China, the central bank, cut interest rates twice between June and July and lowered banks' reserve requirement ratios (RRR) three times after late 2011 to free up more funds for bank lending.

But it has refrained from cutting rates or RRRs since, opting instead to inject short-term cash via open market operations into money markets to avoid fanning inflation and property risks.

Li also said that China's renminbi currency should be allowed to move in a wider range while its real effective exchange rate should remain relatively stable.

In April China doubled the size of the yuan's daily trading band against the dollar to 1 percent to let the market play a bigger role in setting the yuan's value.

The government should cut tax burdens for companies and increase central government fiscal support for local authorities, Li added.

Data suggests China's economy, the world's second largest, is recovering in the fourth quarter after seven straight quarters of slowing growth, thanks to pro-growth policies rolled out by the government in recent months. But the outlook remains cloudy due to global risks.

In a separate article, the China Securities Journal quoted Zhang Xiaoqiang, vice head of the National Development and Reform Commission (NDRC), the country's top planning agency, as predicting the economy could grow 7.5 percent in 2013, while consumer prices could rise 3.5 percent.

Yi Xianrong, an economist at the Chinese Academy of Social Sciences, another top government think-tank, said in separate remarks that the central bank should be cautious in loosening policy in 2013 to avoid inflation and property risks.

"Large amounts of bank credit will flow into the property market if the government further loosens monetary policy in 2013," Yi told the official Financial News.

China's property market has shown signs of warming up in recent months partly due to monetary easing, despite the heavy-handed official restrictions on home buying.

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