China Lowers Reserve Requirement Ratio By 50 Bps

(RTTNews) - The People's Bank of China on Monday said it will lower the share of deposits that some lenders need to set aside as cash with the central bank.

The bank reduced the reserve requirement ratio of lenders whose new loans to farm sector last year exceeded 50 percent of total new lending for 2014. The reduction will be effective from June 16, the PBoC said in a statement.

The latest cut in RRR also applies to financial leasing and auto financing firms. The move will affect around two-third of city commercial banks.

The State Council on May 30 said the PBoC will "appropriately" lower the reserve requirement of banks that focus on lending to rural sectors.

Mark Williams, chief Asia economist at Capital Economics said this targeted RRR cut should not be seen as a move towards broad policy loosening.

Williams said the goal behind reducing RRR for financing companies and leasing firms seems to be to loosen the supply of consumer credit. This is an interesting move, reflecting the PBoC's use of its monetary tools to try to bring about desired structural change.

The PBoC had reduced RRR for rural commercial banks by 2 percentage points and rural cooperative banks by 0.5 percentage points in April.