Central bank move to boost lending
Print Edition
CHINA’S central bank has cut the amount of money banks need to hold in reserve as it steps up efforts to lower funding costs in a bid to boost the economy.
From today, the reserve requirement ratio is cut by 0.5 percentage points for all banks, the first cut since last October and the fifth since February last year, according to a statement by the People’s Bank of China.
The latest cut takes the ratio to 17 percent for the country’s biggest banks and could free up around 700 billion yuan (US$107.7 billion) for banks to give out as loans.
“The cut has been necessary for a long time due to continuous capital outflow pressure, draining liquidity from banks,” said Industrial Bank chief economist Lu Zhengwei. “The move reflects the policy-makers’ decision to adjust monetary policies according to the movement of financial market. Recent tumbling of the stock market and stabilization of the exchange rate offered a window to make the cut.”
He said the cut could channel more funding into the real estate market to help destocking and thus boost the economy.
Records show that the stock market rose in nine out of the 19 reserve requirement cuts in the past five years.
Last week, Zhou Xiaochuan, the central bank governor, highlighted the need to maintain a relative easy monetary stance and the scope of further actions in case of potential downward economic risks.
He told a press conference ahead of the G20 meeting in Shanghai at the weekend that China still had space for monetary easing.
Minister of Finance Lou Jiwei said China would expand its fiscal deficit to support the economy and structural reforms, and monetary and fiscal policies should be coordinated to reach the goal.
In yesterday’s statement, the central bank said the move is meant to guide stable and appropriate growth in credit and create appropriate monetary and financial conditions for supply-side structural reform.
The bank had been using various lending tools and open market operations to inject liquidity to banks as capital was flowing out at a record pace in the past months along with the weakening yuan.
Data released last month showed that the central bank sold a net 644.5 billion yuan worth of foreign currency in January, its second-largest monthly sale after a record 708.2 billion yuan in December, signaling lasting capital outflow pressures.
Wang Yang, a researcher with the State Council’s development research center, said that further foreign currency sales in the future could more or less offset the effect of the easing, and he expected there to be more reserve requirement cuts within the year along with a possible interest rate cut.
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