The People's Bank of China, the
country's central bank, said on Wednesday that it will lower banks'
reserve requirement ratio (RRR) by 50 basis points for the first time in
three years in order to replenish liquidity in the country's banking
system as inflation eases.
The latest cut, effective on Dec. 5, drops
the RRR to 21 percent for large commercial banks and 17.5 percent for mid-
and small-sized banks. An estimated 396 billion yuan (62.38 billion U.S.
dollars) in capital will be released into the market.
The move signals that the government is set
to stabilize economic growth after easing inflationary pressures, although
it is not yet known if the change will bring about a full-on move toward a
looser monetary policy, analysts said.
Lian Ping, chief economist at the Bank of
Communications, said the move is in line with market expectations.
"The reduced RRR rate will ease banks'
credit crunch, caused by a high RRR and decreased yuan funds from foreign
exchanges, as well as promote reasonable growth in banking loans and
stabilize economic growth," Lian said.
PBOC data indicates that yuan funds
stemming from foreign exchanges dropped by 24.9 billion yuan
month-on-month in October, the first decrease in nearly four years.
In a report released shortly after the
central bank's announcement, Bank of America Merrill Lynch (BoAML) said
that it also attributes the cause of the cut to limited room for injecting
cash via maturing central bank bills and surging liquidity demand during
the upcoming Chinese New Year holiday.
PBOC data showed that yuan-denominated
deposits fell by 201 billion yuan in October, with residents' deposits
down by 727.2 billion yuan, indicating that there is less capital
available to banks.
The PBOC has implemented a raft of measures
to ease credit controls, including encouraging the banking industry to
increase lending to small- and micro-sized enterprises and ensuring
sufficient funds for ongoing national projects.
Last week, the PBOC rolled back RRRs for
six rural banks in east China's Zhejiang Province to 16 percent from 16.5
percent.
Meanwhile, as government tightening
measures gradually take effect and international commodity prices decline,
consumer prices have eased in recent months, making it possible to
fine-tune China's monetary policy.
The National Bureau of Statistics (NBS)
reported a 5.5 percent increase in the Consumer Price Index (CPI) in
October, dropping from a 37-month high of 6.5 percent in July.
Lian said he expects the CPI to fall under
4 percent in December and stand around 5.4 percent for the duration of the
year.
"While facing volatile external
demands and both eased economic growth and inflations, the RRR cut is a
signal for stabilizing growth, making the central bank's fine-tuning of
the country's monetary policy more explicit," said Zhuang Jian, a
senior economist with the Asia Development Bank.
The economy's growth slowed to a two-year
low of 9.1 percent in the third quarter of this year, down from 9.7
percent and 9.5 percent in the first quarter and the second quarter,
respectively, according to data from the NBS.
China has made stabilizing prices a top
priority this year. To rein in runaway inflation, the PBOC has hiked
banks' RRR six times and the benchmark interest rate three times this
year.
But in its third quarter monetary policy
report, the PBOC said it will fine-tune its policies as needed. It did not
list keeping stabilizing prices as a priority, which may indicate that the
central bank is giving more weight to economic growth than inflationary
pressures.
The sharp increase in new yuan-denominated
lending, which rose by 116.8 billion yuan month-on-month to reach 586.8
billion yuan in October, was also viewed as a result of the fine-tuning of
the nation's monetary policy.
Guo Tianyong, director of the China Banking
Research Center at the Central University of Finance and Economics, said
that the moves should not be seen as a change in China's current monetary
policy stance.
The government should maintain a prudent
monetary policy, as consumer prices are still at high levels and the
country still needs to contain its red-hot property market, Guo said.
"The RRR cut is merely part of ongoing
fine-tuning, which has been taking place since early October," wrote
Lu Ting and three other researchers in BoAML's report.
Source:
Xinhua |