In line with last week's interest rate cuts, the People's Bank of China has slashed the rates for reserve requirements and loans to state and commercial banks. The annual interest rate for reserve requirements - deposits banks must place with the central bank - is 8.28 per cent, down 0.54 percentage points. The rate for excess reserves has fallen more sharply - 0.9 points - to 7.92 per cent. State and commercial banks are required to keep 13 per cent of their deposits with the central bank, and a further 5 to 7 per cent in excess reserves. The central bank has only cut the rates it charges banks for loans of up to three months and 12 months. Rates for other loans are unchanged. Banks now pay 9.72 per cent - down 0.36 points - for a loan of up to three months from the central bank. They are charged 10.62 per cent - also down 0.36 points - for a one-year loan. On Friday, the central bank announced an average cut of 1.5 points for savings deposits, and 1.2 points for loans to enterprises. Interest rates were first cut on May 1. Analysts said the uneven rate cuts for reserve requirements and loans to banks would pave the way for changes to the reserve requirement system later this year. Central bank governor Dai Xianglong said last month the reserve requirement and excess reserves ratio, now at about 20 per cent, would be cut by about three percentage points. A cut in the reserve requirement would give banks more deposits to play with. Analysts said the idea was to train banks in asset and risk management as part of the move to commercialise their operations. The smaller cuts in rates for central bank loans was in line with its objective of discouraging banks to rely on it for credit.
