China to crank up credit as lending, economy slow

Sat Feb 18, 2012 11:10am EST
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By Jason Subler and Kevin Yao

SHANGHAI/BEIJING (Reuters) - China's central bank cut the amount of cash banks must hold in reserves on Saturday, boosting lending capacity by an estimated 350-400 billion yuan ($55.6-$63.5 billion) in a bid to crank up credit creation as the world's second-biggest economy faces a fifth successive quarter of slowing growth.

The People's Bank of China (PBOC) is on the course of gentle policy easing to cushion the world's fastest-growing major economy against stiff global headwinds as Europe's debt crisis grinds on, although it has been treading warily.

The PBOC cut big banks' reserve requirement ratio (RRR) by 50 basis points to 20.5 percent, effective from next Friday, after repeatedly defying market expectations for such a move after it first cut the ratio last November.

"It's not a big surprise. Although they (Chinese leaders) stress policy stability, an RRR cut is necessary. Trade and monetary data in January pointed to some downward pressure on the economy," said Hua Zhongwei, an economist at Huachuang Securities in Beijing.

"But policy easing will be gradual given the central bank sounded cautious about inflation in its fourth-quarter monetary policy report."

China's economy is likely to slow to an annual growth rate of 8.2 percent in the first quarter from 8.9 percent in the previous quarter, according to the latest Reuters poll.

Data for January came in below market expectations, with exports contracting 0.5 percent from a year earlier and money supply growth falling to 12.4 percent from the previous month's 13.6 percent, which analysts said argued for more easing.

"The growth implications of the below-normal lending in January are dire, should that lending pace be continued," said Paul Markowski, President of New York-based MES Advisers, a long-time investment adviser to China's monetary authorities, who calculates lending was on a 7.9 percent growth path.   Continued...

Chinese one yuan coins are placed on 100 yuan banknotes in this illustrative photograph taken in Beijing December 30, 2010. REUTERS/Petar Kujundzic/Files