People's Bank of China Cuts RRR 50 basis points

The People's Bank of China (PBOC) announced a 50 basis point cut in the required reserve ratios (RRR) for deposit taking financial institutions, effective 18 May 2012.  The new required reserve ratios will average 20.00% for large banks, and 18.00% for small banks.  The move is expected to add as much as 400 billion yuan of liquidity to the financial system.  The move marks a continued shift in the policy bias to loosening, with the PBOC previously being content to use open market operations to adjust liquidity, in contrast to the higher profile RRR.

The last reduction in the RRR was a 50 basis point cut in February this year, while the People's Bank of China last raised the reserve requirements by 50 basis points in June 2011 to peak at an average 21.50% for large banks, and 19.50% for small banks.  The PBC also adjusted the reserve requirement rules in August, effectively resulting in tightening of about 100bps.  Meanwhile the People's Bank of China last raised the benchmark interest rate 25bps to 6.56% in early July last year.  

China reported annual inflation of 3.4% in April, down from a high of 6.5% in July last year.  Meanwhile the Chinese economy grew an annual 8.1% in the March quarter (8.9% in Q4, 9.1% in Q3, 9.5% in Q2).  The Chinese Yuan (CNY) has appreciated by about 3% against the US dollar over the past year, with the USDCNY exchange rate last trading around 6.31.

www.CentralBankNews.info