SHANGHAI, Feb. 20 (SMM) -- The People's Bank of China (PBOC) announced on February 18 that it will lower banks' reserve requirement ratio (RRR) by 50 basis points starting from February 24. The cut is the first of its kind in 2012 and the second since 2011, and this move will release an estimated RMB 400 billion in capital into the market.
The PBOC unexpectedly announced on Saturday to cut the RRR, underling its efforts to ease short-term credit crunch but not meaning the easing of monetary policy. The RRR cut is the fine-tuning of policy, aiming at maintaining the steady economic growth. The move will be favorable for Shanghai metal prices in the short term, but whether or not metal prices can continue rising in the future remains unknown. The move is a continuation of the policy fine-tuning in 2011, easing market expectations of more policy easing.
Markets are now focused on the meeting of euro zone finance ministers to be held today, and there is a high possibility the bailout for Greece will be approved.
In general, the RRR cut will likely become a lure for long investors, and whether or not Shanghai metal prices can move higher after a high open in the near term remains to be seen. SMM believes Shanghai metal prices will continue to fluctuate in a narrow band in the short term amid the pessimistic economic outlook for 2Q.