BreakingChina cuts banks’ required reserves by half a percentage point in fresh sign of stimulus

China’s central bank will lower its required reserve ratio – its first cut since October – in the latest sign that Beijing is firmly on the path of monetary easing.

The move to lower the ratio by 0.5 percentage points, announced by the People’s Bank of China on Monday, came after PBOC governor Zhou Xiaochuan said in Shanghai last week that China would lean towards monetary easing to support growth.

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The central bank’s unexpected move suggested that Beijing was less worried than it was a few weeks ago about the yuan exchange rate weakening.

According to a leaked memo from an internal central bank meeting in January, the PBOC was reluctant to cut the reserve requirement ratio – the minimum amount of deposits commercial banks are required to put at the central bank – for fear of inviting additional pressure on the Chinese currency to weaken.

A 0.5 percentage-point cut in the ratio, effective from Monday, would release an additional 600 billion yuan (HK$7.12 billion) for banks to lend out.

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The move was meant to keep sufficient liquidity in the banking system, to guide “stable and appropriate growth in credit”, and to create an accommodative environment for China’s supply-side reforms, the central bank said.