Barclays Capital Asia Ltd., JPMorgan Chase & Co. and Industrial Bank Co. said this month that ratios were likely to fall ahead of the Lunar New Year festival, which boosts demand for cash. The central bank instead used reverse-repurchase contracts to add money to the financial system.

Premier Wen Jiabao seeks to steer the world’s second- biggest economy through a property market slowdown and the weakest export growth since 2009 without re-inflating asset bubbles or driving up consumer prices. The central bank has left benchmark interest rates unchanged for the past six months, while making a single cut to reserve requirements, the first since 2008, that became effective in December.

“The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire.

Some analysts backed away from their reserve-ratio predictions when they saw the central bank inject 353 billion yuan ($55.7 billion) into the financial system in the week before the holiday, using the 14-day contracts. Barclays said the move had an effect similar to a cut in the bank requirements.

Slow Start

London-based Capital Economics Ltd. said that a suspension of central bank bill sales also played a role in easing liquidity.

“Policy loosening in China has got off to a slow start” with the central bank “confounding widespread expectations,” said Mark Williams, an economist at Capital Economics who formerly advised the U.K. Treasury on China.

By leaving reserve requirements unchanged, “policy makers conveyed the signal that they are in no hurry to loosen,” he said in a note dated Jan. 26. He forecasts five reserve-ratio cuts this year amid risks to the nation’s growth, plus interest- rate reductions if the euro area starts to break apart.

Ken Peng, a Beijing-based economist at BNP Paribas SA, says that the government needs to be “careful not to overshoot monetary loosening, as it did in the financial crisis.” Lingering effects of record lending in 2009 and 2010 include the risk that local government financing vehicles will default on debt.

Loosening Across Asia

India cut banks’ reserve requirements this month, Thailand and the Philippines reduced interest rates, and the U.S. Federal Reserve pledged to keep benchmark borrowing costs “exceptionally low” through late 2014.

On Jan. 24, the International Monetary Fund pared its forecast for China’s growth this year to 8.2 percent from a previous estimate of 9 percent as it warned that Europe’s crisis could trigger another global recession.

A 50 basis-point cut in reserve ratios adds 400 billion yuan to China’s financial system, Australia & New Zealand Banking Group Ltd. estimates. The reduction announced in November was the first since the global financial crisis.

‘Modest’ Easing

Postponing a reserve ratio cut indicates monetary easing “is meant to be moderate and controllable,” Hong Kong-based JPMorgan economists led by Zhu Haibin wrote in a Jan. 20 report after forecasting a pre-festival move in a Jan. 17 report. A cut “in the coming weeks” remains likely because market liquidity will be tight when the 14-day reverse repurchase contracts mature, they said.

Inflation peaked last July in China, giving officials more room to spur growth. Consumer prices rose 4.1 percent in December from a year earlier.

China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the slowest pace since the first half of 2009. Home prices have declined in cities from Beijing to Wenzhou as the government cracks down on speculation and implements a program to build low-cost housing.

Jim O’Neill, the economist who coined the term BRIC for developing nations Brazil, Russia, India and China, said Jan. 17 that Chinese officials had moved to avoid the “wild housing bubbles” that many western nations had experienced. O’Neill, chairman of Goldman Sachs Asset Management, said he doesn’t see a “hard landing” for China.

The central bank is allowing the nation’s five biggest lenders, including Industrial & Commercial Bank of China, to increase first-quarter lending by a maximum of about 5 percent from a year earlier, two people at state lenders said previously.

Separately, the banking regulator has been weighing a plan to relax capital requirements, four people with knowledge of the matter said this month.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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