Chinese authorities moved again over the weekend to shore up faltering growth with a huge 1% reduction to banks’ reserve ratio requirement (RRR) to 18.5% effective Monday.
This is the biggest single cut in the RRR since the GFC started back in 2008 and is aimed at releasing funds held on bank balance sheets into the economy, to be lent by the banks and support economic growth. This is the second such move this year.
The official Xinhua news agency said that there was an additional cut of a further 1% cut “for certain commercial banks lending to small enterprises, the farming sector and major water projects’. As a result “The Agricultural Development Bank of China, the sole policy lender for agriculture, gets a RRR reduction of 2 percentage points.”
Driving the move, according to Xinhua, is the slowdown in growth:
Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern.
Shenwan Hongyuan Securities analyst Chen Kang told Reuters that the “size of the cut is more than expected.”
“It’s going to release around a trillion yuan (in liquidity) at least,” Chen added.
It looks like it might be another good day for Shanghai stocks.