China announces targeted RRR cut for inclusive financing

BEIJING - China's central bank Saturday announced a targeted reserve requirement ratio (RRR) cut to encourage inclusive financing at commercial banks, such as credit support for small and micro-sized enterprises, startups and agricultural production.

The People's Bank of China (PBOC) said commercial banks, whose annual outstanding or new loans in inclusive financing accounts for more than 1.5 percent of the total, will enjoy a 0.5 percentage point RRR cut from the central bank's benchmark level from next year.

The RRR will be cut further by a 1 percentage point if the ratio exceeds 10 percent, the bank said.

Inclusive financing will also cover credit support for small business owners, impoverished groups and students.

The cut, which goes into effect in 2018, is a structural adjustment that does not change the country's overall monetary policy stance, the central bank explained, stressing that it would continue to implement "prudent and neutral" policy to guide reasonable credit and financing growth.

On Wednesday, the State Council had flagged a possible move, saying the government will take measures, including tax exemptions and targeted reserve requirement ratio cuts, to encourage banks to support small businesses.

Li Qilin, chief macro researcher with Lianxun Securities, expected the targeted cut to release at least 700 billion yuan ($106 billion) of liquidity into the economy.

As the country continues to deleverage and defuse financial risks, the move will ease liquidity, especially for small businesses, but it does not mean a policy stance shift, said Zeng Gang, a financial researcher at Chinese Academy of Social Sciences.

The PBOC has been seeking to manage market liquidity through more targeted moves rather than using across-the-board adjustments in interest rates and RRR.

The last cut to the benchmark RRR was in March of 2016, when the rate was lowered by 0.5 percentage point.

Saturday's targeted RRR cut announcement came after data showed the manufacturing sector in September expanded at the fastest pace in more than five years, easing concerns over a loss of momentum in the world's second-largest economy.

The manufacturing purchasing managers' index for this month stood at 52.4, up from 51.7 in August and above the 50-point mark that separates expansion from contraction, the National Bureau of Statistics said.

It marked the 14th straight month of expansion for the country's manufacturing industry and the highest level since May 2012.

GDP grew 6.9 percent in the first half of the year, above the government's targeted growth of around 6.5 percent for 2017. Growth data for the third quarter is due for release on Oct 19.