Dozens of city banks granted RRR reduction

Cuts allow decrease in reserves, aimed at boosting liquidity

Some Chinese city commercial banks have received another cut of 50 basis points (bps) in the banks' reserve requirement ratio (RRR) weeks after a nationwide 50 bps RRR cut, media reports said Thursday.

The move is believed to be aimed at stimulating the economy and encouraging liquidity.

A total of 23 banks in East China's Zhejiang Province have been granted the reduction in their RRR, including the Bank of Hangzhou and Bank of Wenzhou, Shanghai-based newspaper National Business Daily reported on Thursday, citing a document from the People's Bank of China's (PBC) branch office in Hangzhou, capital of Zhejiang.

The further RRR cut is available only for city commercial banks and non-county rural commercial banks that have met the lending target for small and micro enterprises, the report said.

Another five listed city commercial banks, which are Hong Kong-listed Shengjing Bank, Bank of Chongqing and Hui­shang Bank, as well as Shanghai-listed Bank of Beijing and Bank of Nanjing, have also received the targeted RRR cut, Beijing-based newspaper Securities Times reported Thursday.

The targeted RRR cut is set to relieve liquidity at a time when the Chinese economy is under downturn pressure and risk of deflation, Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges, told the Global Times on Thursday.

China's consumer price index in January rose 0.8 percent from a year earlier, the slowest pace in more than five years, according to data released by the National Bureau of Statistics (NBS) on February 10.

Meanwhile, the lower-than-expected January inflation rate coincided with a continued fall in the producer price index (PPI), a key measure of inflation at the wholesale level.

The PPI fell by 4.3 percent in January from a year earlier, lingering in negative territory for the 35th consecutive month, the NBS data showed.

The central bank implemented two targeted RRR cuts in 2014, and the purpose is the same as the latest one's to encourage lending from small and medium-sized financial institutions to small and micro enterprises, according to Xu.

Brushing aside speculation about any interest rate cuts in the near future, Xu Gao, Beijing-based chief economist at China Everbright Securities, told the Global Times on Thursday that a further overall RRR reduction may occur in March if major economic indicators for February are underwhelming.

The PBC, the country's central bank, appears to have conditioned the markets to expect surprises with its announcement of cutting interest rates or RRRs.

On February 4, the central bank surprisingly announced an overall RRR cut starting February 5, the first since May 2012, after it caught many unprepared on November 21, 2014 with an announcement of benchmark interest rate cuts for the first time in more than two years.