BEIJING, Jan 21 (Reuters) - Moves by China's central bank to inject over 600 billion yuan ($91.19 billion) in liquidity ahead of the Lunar New Year holidays could substitute for a cut in the amount of cash that banks must hold as reserves, the chief economist at the People's Bank of China(PROC) was quoted a paper as saying on Thursday.
Ma Jun told the China Business News in an interview that PBOC's liquidity injections could "imply a substitute for a cut in banks' reserve retirement ratios (RRR)".
The central bank pledged on Tuesday to pump funds into the financial system to help ease a liquidity squeeze expected as people stock up on cash before the long celebrations in early February.
It said it would do so via the three policy tools of the standing lending facility (SLF), medium-term lending facility (MLF) and pledged supplementary lending (PSL).
Analysts said the amount of cash to be injected is equivalent to a 50-basis points in RRR, although the central bank provides loans with shorter maturity via SLF and MLF, while cutting RRR would release long-term money.
Separately this week, the PBOC has also injected a net 315 billion yuan into the market this week through open market operations, the most since at least early 2014.
Ma cautioned against relying too much on lowering banks' reserve requirements to inject liquidity into the economy.
"If we use the tool of cutting banks' reserve requirement ratios (RRR) too frequently, it would pose big downward pressures on short-term interest rates, which is not conducive for stabilising capital flows and exchange rates," said Ma.
Economists and investors have expected several reductions in RRR and the PBOC's main policy interest rate this year after China's economic growth in 2015 came in at the slowest in 25 years, though fears of further capital outflows may make interest rate cuts less palatable than RRR cuts or liquidity injections.
Analysts say the PBOC's move could reduce the need for it to cut RRR in the near future, but the central bank remains under pressure to ease policy to support the slowing economy.
Liquidity conditions often tighten ahead of the week-long new year holiday and the central bank usually injects large amounts of cash into the banking system prior to the festivities to keep rates steady. The first day of the new year is Feb. 8.
($1 = 6.5794 Chinese yuan renminbi) (Reporting By Xiaoyi Shao and Kevin Yao; Editing by Kim Coghill)