Beijing, China (4E) – China said that it will cut the amount of cash reserves that banks are required to hold at the central bank in an effort to spur the flagging economy by increasing lending to small businesses and the rural economy.
The People’s Bank of China (PBOC) announced that it would lower the “required reserve ratio” by half a percentage point for banks that typically provide credit to small businesses and rural borrowers.
The latest move by the PBOC may indicate that industrial production, fixed-asset investment and inflation data scheduled to be published this week are expected to show a further easing in the second quarter of 2014.
The new rule, which is aimed in particular at small banks, will be effective on June 16. The cut will apply to banks for whom either small business and rural loans comprise at least 30 percent of total outstanding loans and for whom such loans comprised at least 50 percent of total new loans in 2013.
China’s biggest banks have a requirement of 20 percent of their deposits to be held as reserves at the central bank, while medium-sized lenders are subject to a rate of 18 percent. Rural banks and other small banks have ratios of 16.5 percent or less.