Tag Archives: capital reserves

China Cuts Banks’ Reserve Requirement Ratio

China’s central bank has cut the country’s big banks’ reserve ratio by 50 basis points to 20.5%. The move, effective February 24th, will pump an estimated RMB350 billion-400 billion($56 billion-64 billion) into the economy.

While the People’s Bank of China has been gently expanding credit in recent months in the face of the economy’s slowdown, it had held off reserve ratio requirement cuts since making a first one in November. However, the slowing of money supply growth in January to 12.4% from December’s 13.6% along with a year-on-year 0.5% contraction in exports last month and increasing anxiety about the crisis in the eurozone, has forced the central bank’s hand.

Yet, with inflation staying stubbornly high and the post-2008 global financial crisis stimulus still being wound down, the central bank has to remain careful of easing monetary policy to fast and too far for fear of inflating another bank-lending-driven speculative bubble in assets such as real estate. The local-government debt time-bomb is still ticking quietly in the background, with the threat that poses to the banks that funded it scarcely diminished.

Update: From a PBOC follow-upstatement issued on Sunday, quoting  Jin Qi, assistant to the PBOC governor, speaking at a meeting held on Thursday and Friday:

Both the pressure of growth moderation and that of price rises exist at the same time. The overall tone of the monetary policy will stay prudent…The current international economic situation remains complicated and grim, while China’s economic development is still not balanced, coordinated or sustainable enough.

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China Tilts Monetary Policy Ever So Slightly

China’s economic policymakers have shifted their stance to a certain extent. The central bank’s cut in the capital reserves it requires of banks, though tiny, trimming half a percentage point off the record 21.5% for big banks, goes beyond “fine tuning”. It shows slowing growth is now a greater policy concern than inflation, which, though remaining stubbornly high, policymakers take as having peaked. The move is cautious, and follows a similar cut for small regional banks last week, but policymakers are signaling they stand ready to loosen further if circumstances warrant.

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