China to lower RRR for first time in three years

BEIJING, Nov. 30 (Xinhua) -- The People's Bank of China, the country's central bank, said on Wednesday that it will lower banks' reserve requirement ratio (RRR) by 50 basis points for the first time in three years in order to replenish liquidity in the country's banking system as inflation eases.

The latest cut, effective on Dec. 5, drops the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks. An estimated 396 billion yuan (62.38 billion U.S. dollars) in capital will be released into the market.

The move signals that the government is set to stabilize economic growth after easing inflationary pressures, although it is not yet known if the change will bring about a full-on move toward a looser monetary policy, analysts said.

Lian Ping, chief economist at the Bank of Communications, said the move is in line with market expectations.

"The reduced RRR rate will ease banks' credit crunch, caused by a high RRR and decreased yuan funds from foreign exchanges, as well as promote reasonable growth in banking loans and stabilize economic growth," Lian said.

PBOC data indicates that yuan funds stemming from foreign exchanges dropped by 24.9 billion yuan month-on-month in October, the first decrease in nearly four years.

In a report released shortly after the central bank's announcement, Bank of America Merrill Lynch (BoAML) said that it also attributes the cause of the cut to limited room for injecting cash via maturing central bank bills and surging liquidity demand during the upcoming Chinese New Year holiday.