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Method for calculating Chinese bank RRRs eased
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CHINA on Friday eased the means for calculating the reserve requirement ratios of banks, Xinhua news agency reported, effectively increasing the amount of money banks can lend.
The move does not amount to a formal cut in the reserve requirement ratio, but will allow banks to undershoot it by as much as 1 percent on a daily basis as long as they meet the requirement on average.
Loosening the RRR is also a stimulatory measure as it increases the amount of money banks can lend, which can boost economic activity.
Decades of rapid growth in China have been spurred by huge exports and massive state spending, but the government is keen to retool to boost domestic consumption if its economy is to continue to grow sustainably.
Fears over the authorities’ ability to manage this transition have sent jitters through financial markets around the world, where China has until now been a bright spot on an otherwise largely gloomy horizon.
An announcement earlier last week by the Chinese finance ministry that it would accelerate major construction projects, encourage private capital to invest in key areas and cut taxes for small- and medium-sized enterprises to support growth also appeared to be easing concerns, according to some analysts.
In another positive move, media reports said that China is preparing to unveil broad reforms for state-owned companies which will see some firms shut and others introduce more diversified ownership.
Friday’s report stated that the People’s Bank of China has changed “its reserve requirement rules, replacing the current daily assessment of bank reserves with an averaged approach,” Xinhua reported.
“Starting from September 15, the reserves of commercial banks will be regulated on an average basis during an assessed period, but there will be a minimum daily amount of reserves, the PBOC said in an online statement.”
It did not specify over what period the average will be calculated. By the end of each business day, the reserve ratio of commercial banks will be allowed to be below 1 percent lower than the compulsory ratio set by the PBOC.
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