China’s central bank yesterday said it would make an across-the-board cut in the percentage of funds that banks must hold in reserve, the first such reduction in almost three years, as growth in the world’s No. 2 economy falters.
The People’s Bank of China said in a statement that the reserve requirement ratio would fall by 0.5 percentage points beginning today.
The last time the central bank implemented an across-the-board cut in reserve requirements was in May 2012, previous statements showed.
The measure, intended to free up bank lending, followed an announcement last month that GDP rose 7.4 percent last year — a 24-year low.
The central bank said that it would “promote the healthy and stable operation of the economy.”
Before the move, the requirement for major banks stood at 20 percent, while that for small and medium-sized banks was 16.5 percent, Xinhua news agency reported.
There would be an additional 0.5 percentage point cut for some banks financing areas favored by government policy, including agriculture and hydropower projects, the statement said.
In November last year, the central bank slashed benchmark interest rates for the first time in more than two years; analysts said they expected further monetary easing as the economy showed more signs of distress.
“Today’s announcement is not a surprise,” Capital Economics chief Asia economist Mark Williams said in a research note. “It is consistent with the more accommodative stance being taken since the benchmark interest rate cut in November.”
Williams said the move would pump 600 billion yuan (US$96 billion) into the banking system.
A survey at the weekend showed China’s manufacturing activity contracting for the first time in more than two years, signaling further downward pressure on the economy.
The Purchasing Managers’ Index released by the Chinese National Bureau of Statistics came in at 49.8 last month. A figure above 50 signals expansion, while anything below indicates contraction.
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