CHINESE investors often refer in jest to the central bank as central mama”. The plan is that it can be counted on to provide tender love—that is,policy easing—when market conditions are rough. But during the past couple of years it has been more of a disciplinarian, taking cash absent from reckless investors. Its latest move, or a cut of banks’ required reserves,has triggered a debate approximately which school of parenting it subscribes to these days. Is central mama turning soft again, or is she still cracking the whip?On June 24th the People’s Bank of China said it would reduce the portion of cash that most banks must hold in reserve by 50 basis points. This was equivalent to deploying 700bn yuan ($106bn) in the financial system, or nearly 1% of GDP,which might sound like a healthy dose of liquidity to shore up growth. But the central bank insisted that it was not easing policy.
Many analysts purchase the central bank at its word. In the past, when it focused on the...
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Source: economist.com