The People's Bank of China, the central bank, announced on November 18 that it will lower the legal reserve requirements of financial institutions by two percentage points beginning November 21.

The reduction, from the current eight percent to six percent, is expected to increase the available funds of Chinese financial institutions by nearly 200 billion yuan (some 24 billion US dollars).

Commercial banks could use the increased sum of available funds for providing more loans to enterprises, according to the central bank.

Analysts here said the move will give an impetus to the nation' s economic growth.

The central bank hopes the downward adjustment will also help commercial banks to restructure their fund structure, increase paying ability and improve management, thus paying the way for a steady transition of financial institutions to the year 2000.

The reduction decision was made after a careful study of the current economic situation, the need of commercial banks for increasing loans and the shortage of fund confronting small and medium-sized financial institutions all over the country, the bank explained.

The deposited reserve is the fund held by financial institutions for meeting requirements of fund settlement and for customers drawing from savings deposits. It is widely used by central banks in various countries as an important tool of their monetary policies to regulate money supply.

China established the deposited reserve system in 1984. The central bank reformed its deposited reserve system in March 1998 by reducing the legal reserve requirements from 13 percent to eight percent following the establishment of policy-oriented banks and the improvement in the management of commercial banks. (Xinhua)