China said it will cut the reserve requirement ratio for some of the nation’s banks, the government’s latest step to support growth in the world’s second-biggest economy.
Policymakers will “appropriately” lower the reserve requirement for banks that have extended a certain amount of loans to rural borrowers and smaller companies, the Cabinet said yesterday after a regular meeting led by Chinese Premier Li Keqiang (李克強), without giving more details about the reduction. The Chinese State Council also pledged to fine-tune policy when needed, while reiterating it will maintain a prudent monetary stance.
China’s economy is forecast to expand 7.3 percent this year, which would be the weakest pace since 1990, according to a Bloomberg survey of analysts this month. Li called last week on regional authorities to help stabilize expansion as he seeks to ensure that the government meets its goal of about 7.5 percent growth for the year.
The move “shows policymakers are concerned about the economic slowdown,” Beijing-based Chinese Academy of Social Sciences economist Zhang Bin (張斌) said by telephone. “On the other hand, the government is trying to avoid all-out policy easing as it will jeopardize China’s much-needed economic restructuring.”
The Chinese Communist Party is trying to revive the economy without repeating the mistakes of its US$586 billion stimulus begun in 2008, which caused a record buildup of debt and inflated property bubbles. Chinese President Xi Jinping (習近平) said last month that the nation needs to adapt to a “new normal” in the pace of growth.
The State Council also said in yesterday’s statement that the nation will reduce social financing costs and maintain reasonable growth in credit and social financing as it faces “relatively large” downward economic pressure.
The Chinese central bank cut reserve requirements for some rural banks in April and this month called on the biggest lenders to accelerate the granting of home mortgages. The council has also outlined steps including faster railway spending and tax breaks to help ensure the government meets its growth goal.
A property-market slump threatens to limit any economic rebound and pressure policymakers to do more. Chinese home prices fell 0.3 percent last month from April in the first monthly drop since June 2012, SouFun Holdings Ltd (搜房網), the nation’s biggest real-estate Web site owner, said yesterday.
Nomura Holdings Inc said it expects more policy easing measures in the third quarter after yesterday’s statement, with the government focusing on “targeted and gradual” reserve ratio cuts.
“We expect more details to be announced next week on how the government rates the banks in terms of the share of their loans to the ‘real economy’ and how the size of the required reserve ratio cut will be linked to such a reduction,” Nomura said in a note. “The announcement enhances our conviction that policy easing should delay the risk of a hard landing to 2015.”
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