(Updates with comments from Li, Xi)
By Koh Gui Qing
BEIJING, June 6 China aims to cut the proportion
of cash that commercial banks must keep with the People's Bank
of China, the banking regulator said on Friday, signalling
further monetary loosening although the IMF and World Bank say
the economy is doing fine.
The China Banking Regulator Commission (CBRC) did not say
when reductions in banks' reserve requirement ratios would be
made, but it is the third time in as many months that Beijing
has signalled a cut in RRRs, which would free up more cash for
lending needed to shore up growth.
The CBRC did, however, qualify its comments, saying RRR
reductions would be available to those banks whose lending to
small firms and the farm sector warranted the reward. It did not
The central bank also signalled on Friday that it would keep
credit supply ample by letting China's main money market rate
fall again this week.
Aside from prospects for reductions in banks' RRR, two
bankers told Reuters on Friday that the central bank has also
lent $16 billion to commercial banks so that they can issue the
money to farming projects.
Both the IMF and World Bank gave China a thumbs-up in
separate reports this week that said the world's second-biggest
economy should hit the government's target of around 7.5 percent
growth this year, and encouraged the more urgent pursuit of
Some economists say the IMF and the World Bank may have been
unduly confident about China's near-term growth prospects.
"If the government wants to achieve its 7.5 percent growth
target, I don't really agree with the IMF that it can just not
do anything," said Julian Evans-Pritchard at Capital Economics
in Singapore. "I think the downward pressure on the economy,
especially from the property sector, is still quite
Buffeted by unsteady global demand and slowing domestic
investment, growth in China's stuttering economy cooled to an
18-month low of 7.4 percent between January and March.
A cool-down in a buoyant property market, which contributes
more than 15 percent of China's economic expansion, has fuelled
fears that the Chinese economy will face even stronger headwinds
in coming months.
That has fed investor speculation that China will take
firmer action to boost activity, including lowering the RRR for
The economy faces relatively big downward pressures even as
the growth rate, employment and inflation stayed within
reasonable ranges, state radio quoted Premier Li Keqiang as
VIGILANT ABOUT SHADOW BANKS
Banks's RRRs are neither uniform or transparent in China,
and members of the ruling Communist Party's politburo have the
final say on monetary policy, rather than the central bank or
In April, a week after an announcement by Li, the PBOC
reduced the RRR by between 50 and 200 basis points for some
It did not name the banks or detail what their RRRs were
after the cut, but the central bank said only some rural banks
benefited. Smaller banks tend to have lower RRRs than major
The authorities flagged another cut a week ago, but it is
unclear whether that has taken place, though the latest comments
from the banking regulator have hardened expectations.
The last time China reduced the RRR for all banks was in May
2012, when a cut of 50 basis points lowered the ratio to a
maximum 20 percent for the country's biggest banks.
Authorities have chosen a more nuanced approach this year,
opting to selectively relax policy in areas that it believes
require assistance, rather than let money seep into speculative
or wasteful activities.
The CBRC also said on Friday that it will tighten
supervision of the shadow banking sector to crack down on risky
lending that occurs outside bank balance sheets.
The World Bank urged China to speed up fiscal and financial
sector reforms to deal with the root cause of its debt problems.
President Xi Jinping said on Friday careful planning of
fiscal reforms was needed, the official Xinhua news agency said.
(Additional reporting by Shen Yan; Editing by Simon
Cameron-Moore and Nick Macfie)