China cuts bank reserve requirements by 50bp

China has eased monetary policy for the first time in three years by cutting the amount of deposits that banks must hold in reserve, in a sign of Beijing’s unease over slowing growth in the country.

On Wednesday, the People’s Bank of China said it would reduce the required reserve ratio for all banks by 50 basis points, starting on December 5.

The Chinese move triggered a surge in equity and commodities markets, though it came too late to reverse a drop in Asian equity markets. Germany’s Dax index rallied 2.3 per cent in the wake of the move, while the price of copper, seen by investors as one of the best proxies for Chinese growth, bounced 2 per cent to $7,440 a tonne, though it remains down on the day.

Earlier, markets had been shaken by rumours that China’s purchasing managers’ index, due to be released on Thursday, would undershoot expectations.

The required reserve ratio is at a record high of 21.5 per cent for the largest banks, following multiple rises earlier this year aimed at reining-in high inflation that peaked at an annual rate of 6.5 per cent in July.

Consumer price increases slowed to 5.5 per cent in October from a year earlier and most analysts believe inflation cooled off further in November, providing room for Beijing to loosen monetary policy by cutting the reserve ratio.

Analysts estimated the reserve ratio cut would have the same impact on banks’ ability to lend as the injection of Rmb400bn ($63bn) of base money into the economy.

Mark Williams, chief Asia economist at Capital Economics, said the cut was “a signal not only that policymakers are loosening but that they want to be seen to be doing so”.

He added: “We see this as a decisive shift in policy stance from China.”


We discussed it few days ago, and finally, it has begun..*darth vader anthem*

Will the inflation rate in China goes up next month? Can it handle the time bomb? The clock is ticking, and China better manage it well. What’s your view on this? Share it with us!




~ by extendasia on November 30, 2011.

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