China central bank chief economist says RRR decisions must consider capital flow impact

[BEIJING] Decisions to adjust China's reserve requirement ratio and use of quantitative tools must consider the impact on capital flows, the central bank's chief economist wrote in the bank's official publication on Wednesday.

Cutting banks' reserve requirement ratios (RRR), the amount of cash that banks must set aside as reserves, too often and by too much would result in an excessive fall in onshore domestic interest rates and subsequently spur capital outflows, Ma Jun wrote in the Financial News.

Keeping short-term interest rates at a reasonable level is a prerequisite for considering the scale and frequency of RRR adjustments, Mr Ma wrote, without specifying a reasonable level.

REUTERS