China’s central bank cuts banks' reserve requirements by 50 bps

The People's Bank of China today announced a 50 basis point reduction in banks' reserve requirement ratio (RRR) - the amount of cash that commercial lenders must hold as reserves - effective 24 February, in a bid to ease liquidity in the system.

The RRR cut, which comes two months after a 50 bps cut announced by the central bank on 30 November 2011, would cut RRR for the country's biggest banks to 20.5 per cent from 21 per cent, freeing up funds for onward lending.

The People's Bank, which is slowly easing policy curbs to cushion the world's second-largest economy from global financial woes, had, on Friday, injected short-term cash into the nation's banking system through a reverse repo operation.

The RRR cut is expected to inject around 400 billion yuan ($63.5 billion) more into the banking system that could be used for lending.

With inflation risks persisting and property prices still high, People's Bank, however, is unlikely to give the green light for a bout of big bank lending.

China's economy, which has been growing in double digits for the past few years, is expected to slow down to 8.2 per cent in the first quarter of 2012 from 8.9 per cent in the previous quarter.