A Chinese flag flies outside the People’s Bank of China headquarters in Beijing. The PBoC yesterday announced a 0.5 percentage point cut in reserve requirements for some banks.
Bloomberg/Beijing
China’s central bank announced a 0.5 percentage point cut in reserve requirements for some banks, giving details of a policy move aimed at supporting smaller companies and agriculture.
The reduction will take effect on June 16, the People’s Bank of China said in a statement on its website yesterday. The reduction applies to two-thirds of city commercial banks, 80% of non-county level rural commercial banks and 90% of non- county level rural co-operative banks.
Falling imports in May showed the weakness in domestic demand that is making the Chinese economy more reliant on exports and pressuring Premier Li Keqiang to roll out broader measures to support growth. The authorities’ steps have so far included tax breaks and accelerating some government spending as a property slowdown limits the nation’s expansion.
“The announcement today may not be enough – we may need more forceful monetary policy relaxation in the future,” said Xu Gao, chief economist with Everbright Securities Co in Beijing who formerly worked for the World Bank. Capital Economics Ltd in London estimated a 50bn yuan ($8bn) liquidity boost.
Analysts are divided on whether the government will announce a broader stimulus. Ten of 26 analysts surveyed by Bloomberg News in April forecast a national reserve-ratio cut by the end of June, while 12 of 25 said a reduction would occur by the end of 2014.
“Overall liquidity is appropriately ample and the basic direction of monetary policy is unchanged,” the PBoC said in yesterday’s statement. “The PBoC will continue implementing a prudent monetary policy, keep appropriate liquidity, achieve reasonable and appropriate growth in money, credit and aggregate financing, and promote healthy and stable economic operations.”
Combining the move with other liquidity injections including an April 25 cut to reserve ratios for rural banks, the central bank will inject about 545bn yuan of liquidity by the end of June, according to Zhang Zhiwei, chief China economist at Nomura Holdings in Hong Kong.
The PBoC announcement came after the State Council said on May 30 that policy makers will “appropriately” lower the reserve requirement for banks that have extended a certain amount of loans to rural borrowers and smaller companies.
Yuan forwards jumped the most since January 2012 yesterday after the central bank boosted the currency’s reference rate and an unexpected decline in imports saw China’s May trade surplus increase to the biggest in five years.
Overseas shipments gained 7% from a year earlier, the customs administration said on Sunday in Beijing, exceeding the 6.7% median forecast in a Bloomberg News survey. Imports fell 1.6%, leaving a $35.92bn surplus.