China cuts bank reserve ratio to spur growth

China’s central bank will lower the ratio of funds that banks must hold as reserves in a move that frees tens of billions of dollars for lending and aims to help spur slowing economic growth.

The reserve requirement ratio for major commercial banks will be decreased on Friday to 20.5 per cent from 21 per cent, the People’s Bank of China said on Saturday in a one-sentence notice on its website.

The cut frees money for lending at a time when the growth rate is expected to drop from last quarter’s 8.9 per cent to closer to 8 per cent.

The cut is the second in two months. The bank had pushed the rate to a record 21.5 per cent in June after consumer prices rose by a three-year high of 5.5 per cent the previous month.

Consumer prices rose by an unexpectedly strong 4.5 per cent over a year earlier, up from December’s 4.1 per cent. Food prices shot up 10.5 per cent, accelerating from the previous month’s 9.1 per cent.

The spike in inflation could complicate efforts by Chinese leaders to gradually ease controls to boost growth and create jobs. Regulators are moving cautiously, however, avoiding interest rate cuts and retaining lending controls imposed to cool an overheated housing market.

China rebounded quickly from the 2008 global crisis with a flood of stimulus spending and bank lending that ignited a speculative boom pushing up stock and housing prices. New policies are being put in place to help the working poor and exporters hit by a fall in global demand.

AP