China to boost bank lending power, though IMF says no need

Fri Jun 6, 2014 7:38am EDT
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By Koh Gui Qing

BEIJING (Reuters) - China aims to cut the proportion of cash that commercial banks must keep with the People's Bank of China, the banking regulator said on Friday, signalling further monetary loosening although the IMF and World Bank say the economy is doing fine.

The China Banking Regulator Commission (CBRC) did not say when reductions in banks' reserve requirement ratios would be made, but it is the third time in as many months that Beijing has signalled a cut in RRRs, which would free up more cash for lending needed to shore up growth.

The CBRC did, however, qualify its comments, saying RRR reductions would be available to those banks whose lending to small firms and the farm sector warranted the reward. It did not elaborate.

The central bank also signalled on Friday that it would keep credit supply ample by letting China's main money market rate fall again this week.

Aside from prospects for reductions in banks' RRR, two bankers told Reuters on Friday that the central bank has also lent $16 billion to commercial banks so that they can issue the money to farming projects.

Both the IMF and World Bank gave China a thumbs-up in separate reports this week that said the world's second-biggest economy should hit the government's target of around 7.5 percent growth this year, and encouraged the more urgent pursuit of reforms.

Some economists say the IMF and the World Bank may have been unduly confident about China's near-term growth prospects.

"If the government wants to achieve its 7.5 percent growth target, I don't really agree with the IMF that it can just not do anything," said Julian Evans-Pritchard at Capital Economics in Singapore. "I think the downward pressure on the economy, especially from the property sector, is still quite significant."   Continued...

Chinese Premier Li Keqiang claps as he attends the opening ceremony of the Boao Forum for Asia (BFA) Annual Conference 2014 in Boao, Hainan province April 10, 2014 . REUTERS/China Daily