Cut in bank reserves to boost China's economy

07:58, December 01, 2011

1. China's PMI drops slightly in November
2. China willing to further ties with Kyrgyzstan
3. 9 die, 34 injured in Hong Kong blaze
4. China to lower RRR for first time in three years
5. Experts: TCM can help to fight AIDS
6. Coca-Cola drink center of death probe
7. US battery maker denies causing lead poisoning
8. People’s Daily Online offers jobs in New York

What's happening in China

Unsafe sex spreads new HIV cases

1. Celebrity homes lack protection
2. Foreign insurers exit market
3. Airline vows to boost crews' English
4. Hong Kong's financial services industry grows
5. Tariffs raised 5% to help power firms
6. Arson 'may be cause' of HK blaze

China Features

1. Building a better world
2. Wires crossed
3. With editor, disabled rewrite future
4. Feature: Living with AIDS
5. Microblog politics Opinions
   1. UK mass strike shows steep learning curve
   2. What is to be done with Syria?
   3. China-Myanmar ties challenged by US moves
   4. China and India mustn't go for the throat
   5. Germany needs wisdom to save euro
   

   

   1. Thailand Int'l Motor Expo
   2. Coach to be first U.S. company to list in Hong Kong
   3. Govt passes draft rules to protect bidding process
   4. First high-speed ship to Taiwan sails out of Pingtan
   5. U.S. lauds Turkey's sanctions on Syria
   6. India again cuts petrol prices
   7. Pakistani PM says U.S. to vacate airbase by Dec. 11

More money is being made available for lending for the first time in three years as China "fine-tunes" its monetary policy to sustain growth amid expectations of cooler inflation.

The central bank announced a lowering of reserve requirements for banks by 0.5 percentage points yesterday, the first cut since December 2008, after data showed an outflow of foreign capital in October and easing inflation in three consecutive months from 6.5 percent in July to 5.5 percent in October.

The change in the ratio, effective from next Monday, is expected to add between 350 billion and 400 billion yuan (US$54.8 billion and US$62.7 billion) liquidity to the banking system. The reserve requirement ratio will be 21 percent for large banks and 17.5 percent for smaller ones.

China hasn't raised interest rates since July, the longest pause since increases began in October last year. The last interest-rate cut was also in December 2008, during the global financial crisis.

The People's Bank of China joins the central banks of Brazil, Indonesia, Thailand and the eurozone in easing monetary policy, a reflection of growing alarm that the eurozone debt crisis could drag the global economy back into a recession.

The decision came a day ahead of the release of China's official purchasing managers' index for November, a main measure of industrial activities, which is widely expected to fall from the previous month.

Six of 13 financial institutions surveyed by Reuters expected China's industrial activities to contract in November from the same month of last year due to China's tight monetary policies and sluggish economic growth overseas.China has raised reserve requirements six times and interest rates three times this year to tame inflation, which has led to the country's slowest economic growth since 2009, with gross domestic product increasing 9.1 percent in the third quarter.

"The loss of foreign capital in October has resulted in a shortage of money for the banks, and the central bank is aiming to resume liquidity," said Guo Tianyong, a professor with the Central University of Finance and Economics. "But the decrease is not an indication of a change in direction for China's monetary policies."

He said he expected monetary policies to remain prudent due to still high inflationary pressure and the needs to control house prices.

His view was echoed by Fudan University professor Sun Lijian, who said the decrease in reserve ratios was temporary and warned of a return of inflationary pressure after the US and European governments offer bailouts to ease their debt crises and boost the economy.

But Qu Hongbin, a Hong Kong-based economist for HSBC Holdings, said more reserve ratio cuts may follow, while interest rates may remain unchanged until inflation is below 3 percent. "We see this surprise move as the beginning of monetary easing," Qu said.

Stephen Green, China economist at Standard Chartered Bank in Hong Kong, told Reuters: "This is a big move - this is easing. It's a clear signal that China is on a loosening mode. The next move will be another reserve requirement ratio cut in January."

Email|Print|Comments（Editor：张茜）

Increases the bookmark

• twitter
• facebook
• Sina Microblog
• digg
• Google
• Delicious
• buzz
• friendfeed
• Linkedin
• diigo
• reddit
• stumbleupon
• Qzone
• QQ Microblog

Related Reading

1. Expert: China's economic outlook still rosy
2. China not worried over economic slowdown
3. China approves reshuffling of central bank's monetary policy committee
4. China's economy may cool, hard landing ruled out
5. China's 2012 GDP growth to slow to 9.2 pct: report
6. China to continue prudent monetary policy, inflation controlMost Popular
   • Sex crime records available to HK emplo…
   • Members to spend billions on ASEAN inte…
   • Japan to discuss sea safety with US, In…
   • Bank of China opens branch in Kobe, Jap…
   • China's first heart, liver transplant s…
   • China's service trade volume to hit new…
   • ICC serving private firms established i…
   • China, Africa trade volume to hit 150 b…
   • Canadian, Aussie dollars added to rate …
   • Most Chinese back disclosure of officia…
   

   Opinions

   1. China-Myanmar ties challenged by US moves
   2. China and India mustn't go for the throat
   3. Germany needs wisdom to save euro
   4. Egypt's chaos: No end in sight
   5. Chinese still swarm to hard-hit Wall Street
   6. Durban goals must not crack under pressure
   7. Corporate efforts better than govt ad in selling China
   8. Iceland deal hits local firms with dose of cold water
   9. Are Chinese people truly miserable?
   10. Protecting monetary sovereignty