* China to lower RRR by 50 bps for some banks
* Targets banks in farming sector and SMEs
* PBOC says monetary policy has not changed, liquidity ample
(Adds details, comments)
By Koh Gui Qing and Xiaoyi Shao
BEIJING, June 9 China's central bank said it
will cut the level of reserves banks must hold for those that
have sizeable loans to the farming sector and small- and
medium-sized firms, a move the government had flagged in May to
support the economy.
The People's Bank of China (PBOC) said the targetted
50-basis-point reduction in the reserve requirement ratio (RRR),
effective from June 16, would also apply to financial firms that
disburse consumer or auto loans.
The announcement puts into action a promise by the cabinet
to lower the RRR for more banks on May 30. The move underscores
the government's intent to selectively relax policy in sections
of the real economy deemed most in need of assistance, areas the
PBOC described as "weak links" in its statement on Monday.
The nuanced approach is to avoid increasing credit supply
for all businesses, which critics fear would stoke speculation
or wasteful investment in the world's second-biggest economy.
"The selective easing is meant to be a 'smart bomb' to
deliver liquidity to specific areas in the real economy, yet
without changing the basic tune of the monetary policy stance,"
Credit Suisse said in a note to clients.
This is the second time since April that China's central
bank has acted on the instructions of senior Chinese leaders to
lower the RRR for some banks.
The last time it cut the RRR was on April 25, a reduction of
between 50-200 basis points that applied only to rural banks.
In a sign that authorities do not want any one bank to enjoy
too big a cut in its RRR, the central bank said that banks which
already had their reserve requirements relaxed on April 25 would
not be eligible for Monday's reduction.
"This targeted reduction is to encourage commercial banks to
allocate more funds to areas that need support in the real
economy," the central bank said on its website, adding that it
wishes to see a smooth transmission of monetary policy.
It said the "basic" direction of China's monetary policy has
not changed, and that liquidity supply in the country's banking
system is ample and will be kept at an appropriate level.
Banks' reserve requirements are neither uniform or
transparent in China, and the central bank did not say where
ratios stand after the latest change. Smaller banks tend to have
lower ratios than major banks, which had an RRR of 20 percent in
MONETARY POLICY "BASICALLY" THE SAME
China's economy has shown recent signs of stabilising, but
investors are speculating that the authorities may announce more
stimulus measures, particularly to prevent a sharp deterioration
in the property market.
This is even as China allows the yuan to show
surprising buoyancy in the past few days.
Analysts differed in their estimates about the impact of the
latest RRR cut, and what it means for China's next policy move.
Nomura Bank estimated that Monday's move would inject 95
billion yuan ($15.2 billion) into the economy, while Capital
Economics said only about 50 billion yuan would be added.
"This move makes an RRR cut for all banks less likely in the
near term," Mark Williams, an economist at Capital Economics,
said in a note, adding that China was still fighting the urge to
roll out a broad stimulus.
Worried that China's cooling economy could swoon further if
authorities do not act more forcefully, some analysts have
called on Beijing to cut the RRR for all banks in the country.
Even the China Securities Journal, an official newspaper,
joined the chorus on Monday. A research department under the
paper argued in an article that a lower RRR was needed for all
banks because falling capital inflows into China have squeezed
The central bank said Monday's RRR cut applies to two-thirds
of China's city commercial banks, and 80-90 percent of rural
banks whose business are not restricted to counties.
It specified that banks are eligible for a lower RRR if
their new loans to the farm sector last year exceeded 50 percent
of total new lending, and if their outstanding agricultural
loans exceed 30 percent of their total outstanding loans.
Alternatively, banks also qualify for less stringent reserve
requirements if their new loans to small firms last year
exceeded 50 percent of total new loans, and if such outstanding
loans account for more than 30 percent of total outstanding
Zhang Zhiwei, a Nomura economist, argued that Chinese
authorities have added a "significant" sum of 545 billion yuan
to the economy this year through a series of small easing steps.
"We continue to expect more policy easing measures to come
in the next few months," he said.
A Reuters poll in April predicted China's economic growth
could sink to a 24-year low of 7.3 percent this year.
($1 = 6.2397 Chinese yuan)
(Editing by Jacqueline Wong)