China to cut banks’ reserve requirement ratio by 50 basis points

China will lower banks’ reserve requirement ratio (RRR) by 50 basis points starting Feb. 24, the country’s central bank said Saturday.

The cut, the second of its kind in three months, will drop the RRR for the country’s large commercial banks to 20.5 percent, the People’s Bank of China (PBOC) made the announcement in a statement on its website.

The move followed the PBOC’s decision in December to cut the RRR by 50 basis points, the first time since December 2008, after hiking the RRR six times last year in an effort to rein in liquidity.

“The cut is to meet the large credit demand usually occurred in the first quarter of the year,” said Zuo Xiaolei, chief economist at Galaxy Securities.

The country’s credit and investment demands are returning to a normal level as the government directs its monetary loosening to middle- and small-sized enterprises as well as the low-income housing projects, Zuo said.

The economy has been slowing last year caused by a shrinking external market and the government’s tightening measures to contain runaway inflation.

China’s economy expanded by 9.2 percent year-on-year in 2011, with its GDP growth rate dropping to a 10-quarter low of 8.9 percent in the fourth quarter, according to the National Bureau of Statistics (NBS).

The consumer price index, a main gauge of inflation, rebounded to 4.5 percent in January after easing to a 15-month low of 4.1 percent in December. But it still grew 5.4 percent year-on-year in 2011, above the government’s full-year control target of 4 percent.

Premier Wen Jiabao said last week that the government is paying close attention to the economic situation in January and the first quarter of this year and fine-tuning of macro policies should begin in the first quarter.

Xinhua