UPDATE 1-China to cut reserve requirement ratio for rural banks

Tue Apr 22, 2014 5:08am EDT

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(Adds details, bank regulator comments)

BEIJING, April 22 (Reuters) - China's central bank will cut the amount of deposits rural banks must hold as reserves by between 0.5 and 2 percentage points, it said on Tuesday, the latest in a series of measures to help combat a slowing economy.

The reserve requirement ratio (RRR) will be cut by 2 percentage points for rural commercial banks and by 0.5 percentage point for rural credit cooperatives, the People's Bank of China said in a statement on its website www.pbc.gov.cn.

After the cuts the RRR for some rural banks will be as low as 13 percent, the central bank said.

China's premier, Li Keqiang, had first announced the RRR cuts last week, but had not given details. Li's announcement came on the same day as official figures showed that China's economy expanded at its slowest pace in 18 months between January and March.

It also came just two weeks after China took its first step this year to juice its slackening economy -- cutting taxes for small firms and speeding up investment in railways.

"The cuts will help rural financial institutions increase their financial strength and their ability to support rural development," the central bank said in Tuesday's statement.

In a later separate statement it said that the cuts do not mean a change in the direction of overall monetary policy, which will remain prudent.

"The reserve requirement cut for some rural financial institutions does not mean a shift in the direction of prudent monetary policy and will not affect the total liquidity conditions in the banking system," the central bank said.

Some analysts believe it is a matter of time before China takes more forceful action to energise growth, such as relaxing reserve requirements for major banks to free up more funds in the economy.

China's central bank sets different reserve requirements for banks, depending in part on the size of their loan business.

The ratio stands at 20 percent for China's biggest banks, which face the most onerous requirements, and fall to as low as 16 percent for smaller, rural banks.

Separately, China's cabinet said it also was looking to boost rural banking with a series of new guidelines.

These include allowing more rural banks to take part in re-lending to support rural small businesses, and launching a pilot programme to securitise agricultural-related assets, the statement on the government's website www.gov.cn said.

Banks will also be encouraged to issue financial bonds to support rural development and to set up more branches in areas that have strong agricultural sectors, it said.

The unveiling of new pro-growth measures in quick succession suggests China may be more worried about the foundering economy than it lets on, even though it has ruled out the use of major stimulus to fight short-term dips in growth.

(China Economics Team; Editing by Simon Cameron-Moore)

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