China to cut bank reserve threshold

Beijing/Shanghai — China’s central bank says it is to reduce the amount of cash that lenders must hold as reserves from 2018, with the size of the cut linked to the flow of funding to parts of the economy where credit is scarce.

The targeted measures apply to all major banks, 90% of city commercial banks and 95% of rural commercial lenders, the People’s Bank of China said in a statement on Saturday.

Cuts will range from 0.5 percentage point to 1.5 percentage point depending on how much business banks do with small enterprises, agricultural borrowers and start-ups.

Foreign banks will also be eligible for the cut should they meet the requirements.

Structural adjustment

The targeted reduction is a “structural adjustment” and is not a shift in monetary policy, the central bank said in a separate statement.

Policy makers, who have kept the benchmark lending rate unchanged for almost two years, also reiterated on Saturday that they aimed for “prudent and neutral” monetary policy.

The policy signals that the central bank is, like the rest of the government apparatus, pulling multiple levers to keep economic growth from slowing too sharply in the second half, when the 19th Party Congress takes place. While China is still experiencing rapid credit growth despite an anti-leverage campaign, small-and medium-sized enterprises can still be starved of credit.

The move will free up about 600-billion yuan ($90bn) of funding, Ming Ming, head of fixed-income research at Citic Securities in Beijing and a former People’s Bank of China official, wrote in a note.

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