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China eases with reserve cut for rural banks

SHANGHAI--China will cut the amount of funds that rural banks must keep in reserve, state media said, in a small easing of monetary policy by the government as it tries to provide support to the slowing economy.

The powerful State Council, China's cabinet, said it would allow a cut in the reserve requirements for some county-level commercial banks and cooperative banks in rural areas, the official Xinhua news agency said late Wednesday, but gave no details.

The announcement came on the day the government said gross domestic product grew 7.4 percent year-on-year in the first quarter, sharply down from 7.7 percent the previous three months owing to a slow global recovery as well as domestic structural reforms.

“Currently, downward pressure on economic growth still exists,” the State Council was quoted by Xinhua as saying, adding the government would plan for “stable” growth.

Some analysts have forecast the government could cut reserve requirements for banks nationwide, given the slowdown in the world's number two economy and key driver of global growth.

But Bank of America-Merrill Lynch economist Lu Ting said the “targeted” move reduced the chances of a broader cut in the short term.

“The macro impact of this targeted (reserve) cut is rather small, though the targeted (reserve) cut sends a signal of a new type of policy easing,” he said in a research note.

China last adjusted reserve requirements in 2012, cutting them to 20 percent for large financial institutions and 16.5 percent for smaller ones, according to media reports.

But rural lenders have even lower requirements, officials have said. The central bank could not be reached for comment.

Chinese leaders have publicly ruled out a massive stimulus package to kick-start growth as the country tries to shift away from investment as a major economic driver, but it has unveiled tax breaks for small firms and railway construction for a boost.

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