Beijing cuts required reserves for lenders

SHANGHAI - Agence France-Presse

A bank clerk counts US dollar banknotes on yuan banknotes in Huaibei, China. China has cut required reserve rate. REUTERS Photo

China has decided to cut reserve requirements for banks, after disappointing economic data raised fears of a sharp slowdown in the world’s second largest economy last week.

The People’s Bank of China, the central bank, said on May 12 that it would cut banks’ reserve requirements by 0.50 percentage points effective from May 18, according to a statement posted on its website.

The move was widely expected after China on May 11 reported industrial production growth slumped to a three-year low in April and other figures also disappointed, adding pressure on Beijing to ease monetary policy.

Beijing has already cut bank reserve requirements twice since December as it seeks to boost lending to spur growth, but economists have called for more policy support as economic figures continue to disappoint. China’s economy grew an annual 8.1 percent in the first quarter of 2012, its slowest pace in nearly three years.

The government is targeting economic growth of just 7.5 percent for the whole year, down from actual growth of 9.2 percent last year and 10.4 percent in 2010.

After the latest move takes effect, China’s reserve requirement for most large banks will fall to 20 percent, the official Xinhua news agency said.

Smaller banks will be required to maintain reserves of 16.5 percent.

Analysts said the cut should help pump an additional 400 billion yuan ($63 billion) of liquidity into the economy.

“This is the correct policy action from the central bank’s point of view. Basically, this is just to respond to the weak April data,” Zhou Hao, China economist for ANZ Global Markets, told Agence France-Presse.