China makes big cut in bank reserve requirement to fight slowdown

Sun Apr 19, 2015 12:15pm EDT
 
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BEIJING (Reuters) - China's central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to the world's second-biggest economy to help spur bank lending and combat slowing growth.

The People's Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn.

"Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern," said a report published by the official Xinhua news service covering the announcement.

The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.

"The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang.

"It's going to release around a trillion yuan (in liquidity) at least."

Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014, even with expected additional stimulus measures.

However, the last RRR cut was seen as more defensive by some economists, as it served primarily to offset increasing capital outflows that were exerting a drain on the money supply, making it difficult to guide real lending rates down.

Indeed, Chinese bankers have proven resistant to extending more credit, saying they are also under orders to maintain profitability and reduce the amount of bad loans on their books, but their intransigence appears to have frustrated Beijing.   Continued...

 
A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014. REUTERS/Petar Kujundzic