Amid signs that growth has slowed down considerably in the world's second largest economy, the People's Bank of China allowed banks to boost lending, by further lowering the amount of money that they should hold as reserve.
The PBoC on Saturday slashed the reserve requirement ratio (RRR) by 50 basis points to 20 percent for large commercial banks. The move is expected to add as much as 400 billion yuan of liquidity to the financial system. The new rate will be effective from May 18.
This was the third such move by the central bank in six months after indicators suggested continued sluggish growth. The previous policy change was in February, when the RRR was cut by 50 basis points.
"This weekend's policy move by the People's Bank is likely to be the precursor to a more explicitly pro growth stance from China's government," sa id Mark Williams, Chief Asia Economist at Capital Economics. "April's awful data suggest that officials so far this year have been too sanguine about the state of the economy."
Data released last week showed that China's industrial output growth slowed 9.3 percent from a year earlier in April from 11.9 percent expansion in March. The rate of growth in retail sales also decelerated during the month, to 14.1 percent from 15.2 percent in March.
The Chinese economy expanded 8.1 percent year-on-year in the first quarter of 2012, the weakest pace in nearly three years with sluggish demand from Europe weighing on exports.
Premier Wen Jiabao has pledged to shift focus to more domestic consumption-led growth, as the ongoing uncertainties in Eurozone and weakness in global trade dimmed the prospects of a pronounced expansion in exports in the near-term.
Meanwhile, China's inflation moderated to 3.4 percent in April from 3.6 percent in March. The rate remained comfortably below the government's 4 percent target, giving policymakers enough room for monetary easing.
by RTT Staff Writer
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