Analysis: China bid to boost growth a surprise in timing only

Tue Feb 21, 2012 12:46pm EST
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By Kevin Yao

BEIJING (Reuters) - Any surprise at the timing of China's move this weekend to spur bank lending may be misplaced. Instead, investors should recognize that China is determined to engineer a soft landing for the world's second-biggest economy.

Premier Wen Jiabao had flagged that Beijing should "act quickly" following January economic data that analysts said pointed to additional economic weakness beyond what could be explained by Lunar New Year distortions.

Still, many investors had not expected a cut in bank reserve ratios until March, so the timing of the decision late on Saturday announcing the second 50-basis point cut in bank reserves in three months took them by surprise. The timing may have been geared more to showing that Beijing -- not financial markets -- determine policy.

"The immediate market reaction is surprise on the timing, but people were looking for an RRR cut -- it was just a question of when," said Tim Condon, head of research at ING in Singapore.

"They don't want the market to push them around."

The cut in the RRR -- the reserve requirement ratio -- was China's latest move to support an economy that is widely seen slowing down this quarter for its fifth consecutive quarter. Economists expect full-year 2012 growth to slip below 9 percent for the first time in a decade.

Many economists had thought a cut would come just ahead of January's Chinese Lunar New Year holidays.

When it failed to materialize, they shifted their expectations to March, thinking policymakers would rather make a decision once they had the combined data releases of January and February to smooth out Lunar New Year distortions.   Continued...