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People's Daily Online>>China Business

Cut in bank reserves to boost China's economy

By Feng Jianmin (Shanghai Daily)

07:58, December 01, 2011

More money is being made available for lending for the first time in three years as China "fine-tunes" its monetary policy to sustain growth amid expectations of cooler inflation.

The central bank announced a lowering of reserve requirements for banks by 0.5 percentage points yesterday, the first cut since December 2008, after data showed an outflow of foreign capital in October and easing inflation in three consecutive months from 6.5 percent in July to 5.5 percent in October.

The change in the ratio, effective from next Monday, is expected to add between 350 billion and 400 billion yuan (US$54.8 billion and US$62.7 billion) liquidity to the banking system. The reserve requirement ratio will be 21 percent for large banks and 17.5 percent for smaller ones.

China hasn't raised interest rates since July, the longest pause since increases began in October last year. The last interest-rate cut was also in December 2008, during the global financial crisis.

The People's Bank of China joins the central banks of Brazil, Indonesia, Thailand and the eurozone in easing monetary policy, a reflection of growing alarm that the eurozone debt crisis could drag the global economy back into a recession.

The decision came a day ahead of the release of China's official purchasing managers' index for November, a main measure of industrial activities, which is widely expected to fall from the previous month.

Six of 13 financial institutions surveyed by Reuters expected China's industrial activities to contract in November from the same month of last year due to China's tight monetary policies and sluggish economic growth overseas.

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