China cut the amount of cash that banks must set aside as reserves for the third time in six months, pumping money into the financial system to support lending after data showed a slowdown in growth is deepening.
Reserve ratios would fall 50 basis points, effective on Friday, the People’s Bank of China said on its Web site on Saturday. The level for the nation’s largest lenders will decline to 20 percent based on previous statements.
Chinese Premier Wen Jiabao (溫家寶) is increasingly shifting to supporting the nation’s expansion from fighting inflation and containing property prices. China’s import gains stalled last month, while industrial output rose at the slowest pace since 2009, and new yuan loans were the lowest this year, adding to global growth concerns just as Europe’s debt crisis re-ignites.
“Growth momentum is still weak and external risk has risen sharply,” Liu Ligang (劉利剛), chief China economist at Australia and New Zealand Banking Group Ltd (ANZ) in Hong Kong, said by e-mail on Saturday. “We think another cut could be in mid-June.”
The slowdown in China, the world’s second-biggest economy, underscores risks to the global recovery as job growth in the US slumps. Central bankers across Europe have started discussing the possibility of a Greek exit from the eurozone and how to handle the fallout, Swedish Riksbank Deputy Governor Per Jansson said on Friday.
A 50 basis-point cut in the reserve requirement in February probably added 400 billion yuan (US$63.4 billion) to the financial system, according to ANZ estimates. UBS AG put the figure at 350 billion yuan.
“A more assertive monetary policy is needed and the government should step up stimulus efforts even as concerns remain about the real possibility of over-stimulating,” Alistair Thornton, an economist in Beijing at IHS Global Insight, said before the announcement.
Europe’s more than two-year-old debt crisis flared again this month after voters in Greece and France backed candidates opposed to austerity measures. GDP in the 17-nation region is set to drop 0.3 percent this year, according to the European Commission.
China’s economic performance is facing downward pressure and the domestic and external situations are still “grim,” the Chinese Ministry of Industry and Information Technology said on April 25. Exports rose by less than estimated last month, a customs bureau report showed on Thursday.
The pace of China’s expansion has moderated for the past five quarters as Europe’s debt crisis crimped exports and government curbs on lending and home purchases damped domestic demand. GDP increased 8.1 percent in the first three months of this year from a year earlier, down from an 8.9 percent pace in the fourth quarter.
Bank of America Corp on Friday cut its estimate for China’s second-quarter expansion to 7.6 percent from 8.5 percent and reduced its full-year growth forecast to 8 percent from 8.6 percent. Wang Tao (王濤), China economist at UBS, also lowered her GDP estimates and cut her export growth projection for this year to 7 percent from 10 percent.