China cuts reserve ratio, pumps additional liquidity

With its growth slowing down in the face of global economic downturn, China has decided to lower banks' reserve requirement ratio (RRR) by 0.5 percentage points starting May 18 to pump prime the economy.

Beijing: With its growth slowing down in the face of global economic downturn, China has decided to lower banks' reserve requirement ratio (RRR) by 0.5 percentage points starting May 18 to pump prime the economy.

The cut, the second of its kind this year, will bring down the RRR for the country's large financial institutions to 20 percent and the medium and small-sized financial institutions to 16.5 percent, the People's Bank of China announced today.

China had previously lowered the RRR by 0.5 percentage points on February 24.

The bank's latest move came in the backdrop of newly released economic indicators showing that China's economy continued to slow in April, raising expectations that the government will resort to greater policy easing to help stimulate the GDP.

Declining industrial production and fixed-asset investment, together with disappointing trade figures, have overtaken inflation as the key concern for Chinese policymakers.

Analysts said the central bank's move is to further release liquidity against the backdrop of current slowdown in economic growth.

"The pace of economic growth in April may slow to its lowest ebb this year, mainly dragged down by weak exports and the slumping real estate market," Liu Yuanchun, deputy head with the economics school of Renmin University of China in Beijing told the official media.

In April, China's consumer price index, a main gauge of inflation, eased to 3.4 percent year-on-year from 3.6 percent in March.

Meanwhile, the world's second-largest economy witnessed industrial production growth of 9.3 percent last month, the lowest in three years.

Retail sales growth slowed to 14.1 percent year-on-year from 15.2 percent in March.

Liu Ligang, chief economist in China with the Australia and New Zealand Banking Group, said a main factor for the deteriorating business environment was a continuing tightened monetary policy.

PTI