China Details Reserve Ratio Cut for Regional Lenders

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 June 16, the People’s Bank of China said in a statement on its website yesterday. The change applies to two-thirds of city commercial banks, 80 percent of non-county level rural commercial banks and 90 percent of non-county level rural cooperative 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 50 billion yuan ($8 billion) liquidity boost.

‘Ample’ Liquidity

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 545 billion yuan of liquidity by the end of June, according to Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong.

The PBOC announcement came after the State Council said 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.

Currency Bets

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 percent from a year earlier, the customs administration said June 8 in Beijing, exceeding the 6.7 percent median forecast in a Bloomberg News survey. Imports fell 1.6 percent, leaving a $35.92 billion surplus.

Manufacturing indexes for May have pointed to China’s economy stabilizing.

Earlier government data showed growth in factory production unexpectedly slowed in April from a year earlier to 8.7 percent, and fixed-asset investment excluding rural households increased 17.3 percent in the first four months of the year, the weakest for the period since 2001.

“The selective RRR cut will have the least impact to a ‘broad’ Chinese economy, among those of the stimulus implemented so far in second quarter,” Jimmy Zhu, a Singapore-based economist at FXPrimus Ltd. wrote in an e-mail. “We expect those ‘pro-growth’ measures to start cooling off in the middle of the third quarter when the economy stabilizes.”

Economic Expansion

The world’s second-largest economy expanded 7.4 percent in the January-to-March period from a year earlier, the weakest pace in six quarters.

Australia & New Zealand Banking Group Ltd. estimated in April that a nationwide reserve-ratio cut of a half percentage point would unlock about 500 billion yuan ($80 billion) in funds. The central bank in April lowered the reserve ratio for some rural banks by as much as 2 percentage points, a move ANZ said would release as much as 100 billion yuan.

— With assistance by Xin Zhou, and Kevin Hamlin

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