Bank reserves cut eases loans

PUBLISHED : Friday, 19 November, 1999, 12:00am
UPDATED : Friday, 19 November, 1999, 12:00am

Beijing has cut the deposit reserve requirement of commercial banks from 8 per cent to 6 per cent, freeing up about 200 billion yuan (HK$186 billion) in bank lending.

Analysts had expected the ratio to be cut to 5 per cent.

The central People's Bank of China yesterday said the cut would take effect on Sunday.

The long-awaited move has come as Beijing tries to further boost bank lending to stimulate sluggish economic growth.

Third-quarter gross domestic product fell to 7 per cent, down from 7.1 per cent in the second quarter and 8.3 per cent in the first.

Actual foreign direct investment fell 10.5 per cent to US$32.1 billion from January to last month compared with a year earlier, while contracted FDI dropped 20.6 per cent to $31.27 billion.

Seven cuts in interest rates since 1996 have had little effect on consumer spending.

Deflation has continued since October 1997.

A two percentage point cut in the reserve ratio could release about 200 billion yuan more money for all financial institutions, the China News Service reported yesterday.

Central bank officials were quoted by the agency as saying the lowering of the reserve ratio would help expand the economy, beef up banks' repayment ability and provide stability for the financial system ahead of Beijing's entry into the World Trade Organisation.

Beijing first reformed commercial bank deposit reserve requirement in March last year when it lowered the ratio from 13 per cent to 8 per cent.

This week, Beijing mapped out an economic plan for next year, promising higher government spending and more drastic restructuring of state firms to bolster the economy.

The economy grew 7.4 per cent year on year in the first nine months, compared with 7.8 per cent in the whole of last year.

For next year, Beijing will continue to pursue fiscal policies to boost investment in infrastructure and technical upgrading, including the issue of more treasury bonds.

The target is to achieve a 7 per cent growth in GDP to match this year's.