China may cut reserve ratio with $625-billion 'liquidity hole'

China cut the amount of cash banks need to set aside as reserves four times last year as the nation struggled with slower economic growth, record corporate bond defaults and a trade war with the US

China will cut the reserve requirement ratio and improve funding condit-ions this month, as liquidity tightens toward the Spring Festival holidays, the country’s largest securities firm says.

Fresh demand for funds will amount to nearly 4.3 trillion yuan ($625 billion) in January, according to Citic Securities and Bloomberg calculations. Mainland residents will withdraw 1 trillion yuan of cash in preparation for the holiday, when money is gifted in red envelopes. 

Corporate tax payments and maturities of lenders’ interbank debt will also mop up liquidity, prompting authorities to step up cash injections.

“The People’s Bank of China will inject a significant