China Lowers Bank Requirement, Over $60b Expected to Enter Financial System
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China’s central bank on Saturday lowered the reserve requirement ratio (RRR), the mandated amount of cash holdings banks must keep, boosting lending capacity by an estimated 400 billion yuan (US$63.5 billion).
The cut, which analysts have been eagerly anticipating, came days after Japan loosened its own monetary policy, underscoring global central banks’ drive to shield their economies from the eurozone debt crisis by flooding the financial system with cash.
In a thorough report, the Chinese central bank said:
China’s central bank on Saturday lowered the reserve requirement ratio (RRR), the mandated amount of cash holdings banks must keep, boosting lending capacity by an estimated 400 billion yuan (US$63.5 billion).
The cut, which analysts have been eagerly anticipating, came days after Japan loosened its own monetary policy, underscoring global central banks’ drive to shield their economies from the eurozone debt crisis by flooding the financial system with cash.
In a thorough report, the Chinese central bank said:
[quote] Our policies will become more targeted, flexible and pre-emptive, and we will make timely and appropriate fine-tuning to keep prices basically stable as well as fast economic growth. We will deploy a mix of monetary policy tools to control the pace of credit supply and keep overall social financing at a reasonable amount. [/quote]Related News: China Promises More Help For Euro Debt
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Signs are already showing that the Chinese economy is slowing as Europe’s debt crisis spirals out of hand. With the latest monetary easing, the second largest economy is trying to maintain growth while keeping inflation in check.
China’s consumer price inflation still faces upward pressures from loose global liquidity and commodity prices, the central bank said. Inflation reached a three-year high in July last year, but has since tempered to 4.5 percent in January this year.
The central bank said:
[quote] Global liquidity will remain loose and prices of commodities including crude oil will probably rise further. Therefore, it’s necessary to guard against a rebound in consumer inflation. [/quote]With the European debt a systemic threat to the Chinese economy, China’s economy is expected to grow at 8.5 percent, an upward forecast from a previous 7.5 percent.
The cut, though, is expected to boost investors’ confidence who have long-awaited clear signs of an easing of monetary policy.
Li Daxiao, director at Yingda Securities Research Institute, was quoted by Xinhua:
[quote] It shows that the focus of country’s policy is directing from containing prices to stabilizing growth, which is also in line with the government’s intent to fine-tune macroeconomic policy in the first quarter. [/quote]Related Story: China’s 2012 Outlook: The Bad News about the Reserve Cut
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