China's central bank on Sunday cut the amount of money that banks must hold as reserves, industry-wide second cut in two months, adding more liquidity to the world's second largest economy to help spur bank lending and combat slowing growth.People's Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn."Although growth in the first quarter met the official target of around 7 percent for 2015, a slowdown in several areas, including industrial output and retail sales, have raised concerns," said a report published by the official Xinhua news agency covering the announcement.Latest piece, single reduction since the depths of the deepest global crisis in 2008, shows how the central bank stepped up efforts to ward off a sharp decline in the economy."The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang."It would be releasing about one trillion yuan (liquidity) at least."Burdened by a decrease in property, excess plant capacity and local debt, growth is expected to slow to its lowest point quarter-century of about 7 percent this year from 7.4 percent in 2014, even with the expected additional stimulus measures.However, RRR cut and viewed as more defensive by some economists, as presented primarily to offset rising capital outflows which exert a drain on the supply of money, so it is difficult to guide the real mortgage interest rates go down.Indeed, Chinese bankers have proven resistant to extend more credit, say they are also under orders to maintain profitability and reduce the amount of bad loans on their books, but they seem to have frustrated the rigors of Beijing.Prime Minister Li Keqiang urged the public banks to lend more to the real economy during a visit to the big banks on Friday.SIGNAL AGGRESSIVEOn the corporate front, executives say they are wary start fresh investments, given the weakness of demand and the weakening of the power of producer prices.As a result, the think-tank and advisor to the government that polarization into ones calling for stimulus to arrest the slowdown and the rival camp emphasizes structural reform as a route to sustainable growth."The amplitude of the signal reduction reflects a more aggressive policy," said Xie Yaxuan, macroeconomic research director at China Merchants Securities."The reduction should help make up for the negative growth of foreign exchange in the first quarter, which creates a hole in the monetary base," he said.The central bank also announced cuts in RRR targeted; an additional 100 bps cut for rural credit cooperatives and village banks, as well as cutting 200 basis points to China Agricultural Development Bank, one of the main policy lender China.Last PBOC cut the RRR for all commercial banks by 50 basis points on 4 February, the industry-wide first cut since May 2012.The central bank has also cut interest rates twice since November in an effort to lower borrowing costs and spur demand, but while short-term cash rate has dropped in recent weeks, long-term loans to the real economy has not shown many signs of a reaction."Real interest rates are very high, and they are also relatively high for the back," said Arthur Kroeber, head of research at Gavekal Dragonomics."RRR has been at twenty percent for a long time, and that has created the space for it to go down further."(Reuters)
