December 1, The People’s Bank of China, or central bank, on Wednesday said it would lover banks’ reserve requirement ratio by 50 basis points for the first in 3 years, indicating Beijing’s balance of risks has shifted to growth from taming inflation after a manufacturing activity reading dropped below the expansion-contraction line for the first time since February 2009.
From Dec. 5, the ratio for larger banks will be lowered to 21% and that for smaller lenders to 19%. An estimated RMB 396 billion ($62.2 billion) in capital will be freed up and pumped into the market.
China set stabilizing prices gains as a top priority at the beginning of 2011, as the cost of housing and inflation surged. Before Wednesday’s announcement, the central bank had increased banks’ reserve requirements 6 times and the benchmark interest rate 3 times this year to rein in liquidity.
Economic Slowdown
Market watchers said the latest move signaled that the central government is worried about weakening economic growth, although it is hard to tell if the move will lead to a generally looser monetary policy.
The ratio cut is a signal for stabilizing growth and part of the central bank's fine-tuning of the country's monetary policy as China is facing volatile external demand and easing economic growth and inflation, said Zhuang Jian, a senior economist with the Asia Development Bank.
China's official purchasing managers index, the gauge of China's manufacturing activity, fell to 49% in November, indicating a contraction for the first time in more than 2 years. A reading below 50 indicates contraction while a reading above 50 indicates expansion.
The November reading was down 1.4 percentage points (pps) from 50.4% in October, the China Federation of Logistics and Purchasing said on Thursday.
The sub-index for new orders in November fell by 2.7 pps on a monthly basis to 47.8%. The sub-index for purchase prices fell 1.8 pps from October to 44.4% last month.
Economic growth slowed to a 2-year low of 9.1% in the third quarter of this year, compared with 9.7% in the first quarter and 9.5% in the second quarter, according to data from the National Bureau of Statistics.
Source:21cbh.com