China’s PBC to Cut Reserve Rate Requirement by 0.5 Percentage Points

May 14, 2012 Posted by China Briefing Reading Time: 2 minutes

May 14 – The People’s Bank of China announced on May 13 that it would cut the amount of cash that banks must hold as reserves by 0.5 percentage points (50 basis points) recently released statistics pointed to a sharper-than-expected slowdown of the economy. The cut, which is the second this year following the first cut in February, will be effective from May 18, 2012.

With this latest adjustment, the bank reserve requirement ratio will be reduced from 20.5 percent to 20 percent for large banks, while smaller banks will be required to maintain 16.5 percent of reserves.

The move to cut reserve requirement ratios came out after a broad range of official monthly data was released on Friday by the Chinese government, showing a continued deceleration in economic growth.

According to the official data, industrial output rose only 9.3 percent in April, a sharp decrease from the 11.9 percent increase in March and the slowest growth in the past three years. Moreover, fixed asset investment and retail sales also experienced a drop in growth, from 20.9 percent and 15.2 percent in March to 20.2 percent and 14.1 percent in April, respectively.

China also saw its trade surplus widen in April. Exports grew by only 4.8 percent to US$163.3 billion in April, far below the 8.9 percent growth in March, while imports edged up 0.3 percent to US$144.8 billion, resulting in a trade surplus of US$18.4 billion compared with a surplus of US$5.35 billion in March and a deficit of US$31.5 billion in February.

“Whether foreign trade, investment, tax revenue or credit growth, they all showed the phenomenon of slowing down,” Lian Ping, chief economist at the Bank of Communications, told AFP.

Cutting the reserve requirement ratio is expected to free up roughly RMB400 billion (US$63.4 billion) in bank lending.

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