China's 2nd bank reserves cut to boost slowing economy - analysts

14 May 2012 06:41  [Source: ICIS news]

SINGAPORE (ICIS)--China has cut its bank reserve requirement for the second time this year, in an effort to boost domestic economic activities amid continued weakness in external demand, analysts said on Monday.

A 50-basis point cut in bank reserve requirement ratio will take effect on 18 May, the People’s Bank of China (PBoC), the country’s central bank, announced over the weekend.

RRR, which refers to the portion of deposit that must be parked with the central bank, for major financial institutions will be reduced to 20%. For medium-sized financial institutions, the effective rat would be 16.5% starting Friday, the PBoC said.

The reduction in RRR would free up about yuan (CNY) 400bn-500bn ($63bn-79bn) in funds for lending to ease a domestic crunch currently prevailing in China, analysts said.

China last implemented a 50-basis point cut in bank reserves on 24 February.

“The loosening of monetary policy will benefit the country’s real estate sector, which may help in the recovery of markets, such as construction, building materials and engineering machinery,” said Lian Ping, chief economist at China’s Bank of Communications.

China may implement further cuts in bank reserves in the months ahead, as the world’s second biggest economy tries to put a brake on its slowdown, said Peng Wensheng, chief economist at China International Capital Corporation (CICC).

The country is the biggest importer of petrochemicals in Asia.

In April, its manufacturing activities – as measured by its Purchasing Managers’ Index (PMI) – showed a slight improvement from March.

($1 = CNY6.31)

By: Rachel Yang

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