China Reduces Reserve Ratios to Spur Bank Loans

By Bloomberg News - Nov 30, 2011 6:15 PM GMT+0700

China cut the amount of cash that banks must set aside as reserves for the first time since 2008 as Europe’s debt crisis dims the outlook for exports and growth.

Reserve ratios will decline by 50 basis points effective Dec. 5, the People’s Bank of China said in a statement on its website today. Before the announcement, the level was a record 21.5 percent for the biggest lenders, based on previous PBOC statements.

A government clampdown on property speculation has added to the risk of a deeper slowdown in the economy that contributes the most to global growth. Exports rose by the least in almost two years in October and inflation eased to 5.5 percent, the smallest gain in five months.

“The move will help ease liquidity after previous tightening measures cooled credit growth too much and may have added to the risks of a hard landing for China,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said before today’s release.

The People’s Bank of China previously allowed reserve ratios to fall by half a percentage point for more than 20 rural credit cooperatives. Those lenders had been subject to elevated requirements for a year as a penalty for failing to meet lending targets.

Premier Wen Jiabao said last month the government will fine-tune economic policies as needed to sustain growth while pledging to maintain curbs on real estate. Economic growth cooled to 9.1 percent in the third quarter from a year earlier, the slowest pace in two years.

--Li Yanping. Editors: Paul Panckhurst,

To contact Bloomberg News staff on this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net