Reserve ratios cut for some Chinese banks as premier backs ‘reasonable’ growth

Stimulus measure comes as Premier Li Keqiang stresses need for reasonable economic growth

PUBLISHED : Monday, 09 June, 2014, 11:43pm
UPDATED : Tuesday, 10 June, 2014, 4:34am

The People's Bank of China announced details of a cut in reserve requirements for some banks and lenders yesterday, aimed at supporting small businesses, rural economies and consumption.

The central bank said the 0.5 percentage point cut, effective next Monday, would apply to two-thirds of municipal commercial banks, most rural banks, as well as car financing companies and financial leasing firms.

The announcement came as details of Premier Li Keqiang's recent remarks on the economy were released, showing what analysts say is a change of policy emphasis.

"We have said no to the blind pursuit of GDP growth. That does not mean that we no longer care about reasonable economic growth," Li (pictured) told a mayor and seven governors from the mainland's most economically vibrant areas on Friday, according to a statement on the State Council's website.

Last month the State Council revealed it would target more bank lending to small businesses and farms.

Raymond Yeung Yue-ting, a senior economist at ANZ Banking, said the reserve ratio cut reflected the State Council and Li's increasing worries over slowing economic growth.

"The RRR [reserve requirement ratio] cut is a signal that the government is considering more relaxation in monetary policy," Yeung said. "If economic data in May and June do not show a recovery, I expect a broad-based RRR cut to free up more funds in an effort to boost growth."

Zhang Zhiwei, a China economist at Nomura, estimates 95 billion yuan (HK$120 billion) will be injected into the market as a result of the reduction.

The mainland's gross domestic product grew by 7.4 per cent in the first quarter compared with a year earlier, the weakest pace in six quarters and below its target of 7.5 per cent for this year - deepening concerns about the strength of the world's second-largest economy.

Friday's conference on the economy was attended by Beijing's mayor and governors from Hebei , Shanxi , Heilongjiang , Jiangsu , Zhejiang , Guangdong and Sichuan .

Li said growth remained vitally important, despite the government's priority being restructuring the economy. He reminded officials of their "inescapable responsibility" to achieve this year's economic targets.

"No delay in action is allowed," he said.

At the meeting, Li asked ministers to submit a timetable for solving the top three problems complained of by governors: scarce credit, slowing direct investments and weak exports.

Hao Hong, chief economist and managing director of Bank of Communications (International)'s research unit, said he believed that Li's statement suggested the "government will announce more pro-growth measures to boost growth very soon".