BEIJING, June 15 (Reuters) - China could reduce banks’ reserve requirement ratio further to help the country’s medium and small firms cope with a credit squeeze, the Chinese Academy of Social Science said in an article published in the official People’s Daily on Friday.
The country’s top think tank said the world’s second-largest economy could increase imports and yuan flexibility, and offset the need to maintain high bank reserves to counteract pressure from vast foreign reserves.
Its recommendation was in line with calls by retired officials and advisors for more RRR and interest rate cuts, rather than releasing a large stimulus package, at a Thursday forum in Beijing.
“Since the broad money supply has increased at a slow speed this year, we could continue to cut the amount of cash that banks must hold as reserves,” the think tank said in an article written for the paper.
“We could tolerate the short-term trade deficit while pursuing long term trade balance to avoid the risk of U.S. dollar depreciation.”
Cutting RRR would support the development of medium and small firms, which were vital for generating economic growth and jobs, the article said.
It is unclear if article reflects official policy, but its appearance in the People’s Daily, a mouthpiece for the ruling Communist Party, means the recommendations are at least under consideration.
China’s central bank last week cut interest rates for the first time since the depths of the 2008/09 global financial crisis, while giving banks more freedom to set lending and deposit rates in a step toward liberalisation.
It has reduced banks’ reserve requirement ratio three times since November to pump out additional funds that can be used to boost lending.
CASS suggested that China could increase imports of high-tech equipment and important materials to put foreign reserves to use in supporting economic growth.
It also mentioned that China needs to step up the reform of the renminbi exchange rate regime, to relieve appreciation pressure stemming from the vast foreign reserves.
China has the world’s largest stockpile of foreign exchange reserves of $3.3 trillion. Beijing has been seeking ways to preserve value and improve returns - a daunting task as global markets reel under the European debt crisis. (Reporting By Xiaoyi Shao and Lucy Hornby; Editing by Ramya Venugopal)