Main­land cuts bank re­serve ra­tio re­quire­ment as growth slows

The China Post - - FRONT PAGE -

Main­land China’s cen­tral bank an­nounced Sun­day it would cut the level of funds that com­mer­cial banks must hold in re­serve by one per­cent­age point, the sec­ond such move this year to boost lend­ing.

The move, ef­fec­tive Mon­day, comes days af­ter the world’s sec­ond largest econ­omy re­ported its worst quar­terly growth fig­ure for six years.

In a state­ment on its web­site, the Peo­ple’s Bank of China (PBOC) said it will give an ad­di­tional one-per­cent­age-point RRR cut to banks for agri­cul­tural ser­vices and a fur­ther two-per­cent­age-point cut to the Agri­cul­tural Devel­op­ment Bank of China.

It will also give a 0.5 per­cent cut to cer­tain banks that give agri­cul­tural or small- busi­ness loans.

The cuts will “fur­ther en­hance the abil­ity of fi­nan­cial in­sti­tu­tions to sup­port re­struc­tur­ing,” the PBOC said.

The re­duc­tion in the re­serve re­quire­ment ra­tio (RRR) — the amount of cash banks must keep on hand — fol­lows a sim­i­lar move in early Fe­bru­ary, which was the first across-the-board cut since May 2012.

He­len Qiao, greater China econ­o­mist at Mor­gan Stan­ley, told Bloomberg News that the lat­est cut was “war­ranted given the sharp slow­down.”

“The move is pos­i­tive, show­ing pol­i­cy­mak­ers are try­ing to off­set the im­pact of po­ten­tial cap­i­tal out­flow and sta­bi­lize the macro en­vi­ron­ment,” Qiao said, adding that the cut “shows the in­ten­si­fi­ca­tion of pol­icy eas­ing.”

The main­land’s Com­mu­nist Party-run Peo­ple’s Daily said the cut will re­lease 1.2 tril­lion yuan (NT$6.02 tril­lion; US$194 bil­lion) into the world’s sec­ond-big­gest econ­omy.

The Cen­tral Bank last cut its re­serve re­quire­ment in Fe­bru­ary, when it slashed the rate to 19.5 per­cent for big banks and 16 per­cent for small- and medi­um­sized banks.

Main­land China’s gross do­mes­tic prod­uct ( GDP) growth slowed to 7.0 per­cent in the first quar­ter from 7.3 per­cent in the fi­nal three months of last year, mark­ing the worst re­sult in six years.

Growth in industrial out­put and re­tail sales slowed in March, while the fig­ure for fixed as­set in­vest­ment also weak­ened in the first three months of the year, rais­ing ex­pec­ta­tions of fur­ther ef­forts to shore up the econ­omy.

Re­duc­ing the RRR is a stim­u­la­tory mea­sure as it in­creases the amount of money banks can lend out and thus helps to boost eco­nomic ac­tiv­ity.

Be­sides the RRR cuts, the main­land’s cen­tral bank has low­ered bench­mark in­ter­est rates twice since Novem­ber as the Asian gi­ant’s eco­nomic growth slowed last year to a 24-year low.

Alarm Bells

The main­land’s econ­omy ex­panded an an­nual 7.4 per­cent in 2014, its worst per­for­mance since 1990.

Eco­nomic data have con­tin­ued to dis­ap­point this year, rais­ing alarm bells that growth is weak­en­ing too quickly, de­spite au­thor­i­ties’ ac­cep­tance of a more sus­tain­able growth model that places greater em­pha­sis on con­sumer spend­ing to drive ex­pan­sion.

The PBOC car­ried out tar­geted RRR cuts last year, part of a se­ries of “mini-stim­u­lus” steps in­tro­duced from April when growth be­gan to slow.

Last month main­land China low­ered its GDP growth tar­get to “ap­prox­i­mately 7 per­cent” for this year from last year’s ob­jec­tive of about 7.5 per­cent.

The PBOC cut bench­mark de­posit and lend­ing in­ter­est rates ear­lier this year for the sec­ond time in three months, cit­ing “his­tor­i­cally low in­fla­tion.”

Con­sumer in­fla­tion held steady at 1.4 per­cent in March from Fe­bru­ary. It struck a more-thanfive-year low of 0.8 per­cent in Jan­uary, but a fur­ther 4.6 per­cent per­cent plunge in fac­tory gate costs — a lead­ing in­di­ca­tor for re­tail prices — com­pounded nag­ging wor­ries that China could face de­bil­i­tat­ing de­fla­tion.

Lead­ers in March also set the con­sumer price in­dex tar­get at “around 3 per­cent” for this year, down from last year’s goal of about 3.5 per­cent.

Ac­tual con­sumer 2.0 per­cent in 2014.

The RRR cut comes one day af­ter Peo­ple’s Bank of China Gov. Zhou Xiaochuan sug­gested in an in­ter­view with Bloomberg News that the main­land could take steps to­wards fur­ther eas­ing.

“We have room in the re­serve ra­tio and our in­ter­est rates are not zero yet,” Zhou said on the side­lines of the In­ter­na­tional Mon­e­tary Fund’s spring meet­ing in Wash­ing­ton.

“There is def­i­nitely room. But we need to ad­just care­fully. It doesn’t mean we will have to uti­lize it or fully uti­lize the room,” he added.

prices rose

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