According to data released by the central bank on January 31, the central bank's treasury deposits were 2.27 trillion yuan, marking a significant decline from November's 3.41 trillion yuan. The decline in government deposits had the equivalent effect of cutting bank reserve requirement ratios by 1.5 percentage points.There's probably an explanation, but such a large drop in reserves doesn't look good.
Despite widespread speculation that the central bank cut bank reserve requirements to improve market liquidity, the central bank didn't announce any rate hikes in January. Instead, the bank conducted several consecutive rounds of reverse repurchase agreements to inject liquidity into the market before the Spring Festival holiday which started on January 22.
Market analysts said that the significant reduction of treasury deposits has been a key factor in the delay behind the announcement of a new reserve requirement cut.
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