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China cuts bank reserves limit again

Bloomberg Beijing

CHINA cut the amount of cash that banks must set aside as reserves for the third time in six months, pumping money into the financial system to support lending after data showed a slowdown in growth was deepening.

Reserve ratios fell 50 basis points, effective from Friday, the People’s Bank of China said on its website on Saturday. The level for the largest lenders declined to 20 percent based on previous statements.

Premier Wen Jiabao is increasingly shifting to supporting the nation’s expansion from fighting inflation and containing property prices. China’s import gains stalled last month while industrial output rose at the slowest pace since 2009 and new yuan loans were the lowest this year, adding to global growth concerns just as Europe’s debt crisis reignites.

“Growth momentum is still weak and external risk has risen sharply,” said Liu Li-Gang, chief China economist at Australia & New Zealand Banking Group.

The slowdown in China underscored risks to the global recovery as job growth in the US slumped. Central bankers across Europe had started discussing the possibility of a Greek exit from the euro area and how to handle the fallout, said Swedish Riksbank deputy governor Per Jansson.

A 50 basis point cut in the reserve requirement in February probably added 400 billion yuan (R508bn) to the financial system, according to Australia & New Zealand Banking Group estimates. UBS put the figure at 350 billion yuan.

“A more assertive monetary policy is needed and the government should step up stimulus efforts even as concerns remain about the real possibility of over-stimulating,” Alistair Thornton, an economist in Beijing at IHS Global Insight, said before the announcement.

Europe’s debt crisis has flared again this month after voters in Greece and France backed candidates opposed to austerity measures. Gross domestic product (GDP) in the region is set to drop 0.3 percent this year, according to the European Commission.

China’s economic performance was facing downward pressure and the domestic and external situations were still “grim”, the Ministry of Industry and Information Technology said. Exports rose by less than estimated in April, a customs bureau report showed.

Bank of China said on April 26 that new loans dropped 17 percent to 247 billion yuan in the first quarter from a year earlier. Profit growth decelerated to 10 percent from 10.8 percent in the previous period.

The pace of China’s expansion has moderated for the past five quarters as Europe’s debt crisis crimped exports and government curbs on lending and home purchases damped domestic demand. GDP increased 8.1 percent in the first three months of 2012 from a year earlier, down from 8.9 percent pace in the fourth quarter.

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