China lowers reserve requirement ratio for rural banks

BEIJING: China's central bank said it will cut the reserve requirement ratio (RRR) for county-level rural commercial banks and rural credit cooperative unions from April 25 to help increase the flow of credit.

The adjustment will help enhance financial support for rural development and guide credit flow to rural areas, the People's Bank of China said in an online statement.

The RRR for county-level rural commercial banks will be cut by 2 percentage points and that of rural credit cooperative unions by 0.5 percentage point.

"In the context of prudent monetary policy, the decision will not affect the overall liquidity in the banking system," the bank said, adding it will continue to achieve reasonable growth in credit and social financing with a focus on improving financing structure, state-run Xinhua news agency reported.

The move came after the Cabinet last week pledged a string of financial and tax moves to provide more support for the rural economy and bolster job creation.

The RRR is the minimum amount of customer deposits that each bank must hold as reserves instead of lending and is an important monetary tool used by central banks.

Lowering the RRR is often aimed at boosting bank lending and economic growth.

China's gross domestic product expanded 7.4 per cent year on year in the first quarter, slightly outpacing market estimates. It was lowest growth rate since the third quarter of 2012.

Instead of unleashing strong stimulus policies, the government has opted to take smaller but more targeted moves this time, including cutting tax for micro and small businesses, facilitating shanty-town renovation and speeding up railway construction to support growth.