China cuts bank reserve requirement to shore up growth

Beijing

CHINA'S central bank cut the amount of cash that banks must hold as reserves on Wednesday, the first industry-wide cut in more than 21/2 years, as it increased efforts to shore up flagging growth in the world's second-largest economy.

The move, which came less than three months after China also cut interest rates for the first time in over two years, was widely expected by investors, who had bet that monetary policy had to be further loosened to lift economic growth from a 24-year low.

The reserve requirement ratio, or RRR, would be lowered by 50 basis points, the People's Bank of China (PBC) said in a statement. The cut is effective from Feb 5 and will take the RRR for big banks to 19.5 per cent. "The move was in line with expectations," said Wen Bin, senior economist at Minsheng Bank in Beijing. "Capital outflows and yuan depreciation have led to net FX sales in recent months. The central bank has tried to use short-term policy tools to inject more liquidity, but such tools look not enough, so it has to cut RRR." He said that he did not expect more policy moves in the first quar…