The headquarters of the People's Bank of China, the Chinese central bank, in Beijing.

The headquarters of the People’s Bank of China, a.k.a China central bank, in Beijing.

China central bank acts to boost bank lending and combat slowing economic growth in world’s second-biggest economy

The People’s Bank of China (PBOC), the central bank of china, said on 19 April that the reserve requirement ratio (RRR – the amount of cash that banks must hold as reserves) will be lowered by 100 basis points effective from 20 April and took the RRR for large banks to 18.5 percent. Nearly a trillion yuan of funds would be released after the big cut down to stimulate the slowing growth of the world’s second-biggest economy by easing bank lending, expected by markets.

This is the 2nd times for the PBOC cut the RRR. The PBOC last cut the RRR for all commercial banks by 50 basis points was effective from 5 February and took the RRR for large banks to 19.5%.

The central bank also announced targeted RRR cuts; an additional 100 bps cut for rural credit cooperatives and village banks, as well as a 200 basis point cut for the China Agricultural Development Bank, one of China’s major policy lenders.

“Though the growth in the Q1 met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern,” said a report published by the official Xinhua news service covering the announcement.

The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.

Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014, even with expected additional stimulus measures.

However, the last RRR cut was seen as more defensive by some economists, as it served primarily to offset increasing capital outflows that were exerting a drain on the money supply, making it difficult to guide real lending rates down.

Source: Reuters

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