Reserve ratio cut to assist financing, aid growth

The central bank has cut the amount of money banks must keep in reserve and reduced benchmark interest rates in a move to consolidate the rebound of economic growth and keep companies' financing costs down.

The People's Bank of China announced it is lowering the reserve requirement ratio by half a percentage point for city commercial banks and non-county-level rural commercial banks that have lent a certain portion of their loans to companies involved in agriculture.

It also reduced the rate by the same amount for large State-owned commercial banks, joint-equity commercial banks and foreign banks that give loans to small and micro businesses.

For finance companies, the ratio was lowered by 3 percentage points, said a statement on the bank's website.

The central bank decided to simultaneously cut the one-year deposit and lending rates by 25 basis points, the third cut this year. The deposit rate was reduced to 2 percent, while the lending rate hit a record low of 4.85 percent.

The deposit rate has been cut by 115 basis points this year, and the lending rate has fallen by 100 basis points.

It is not usual to see simultaneous cuts, but the central bank's further easing has been expected, said experts, explaining that the main target is to stabilize economic growth.

Lu Lei, head of the PBOC's research department, said that using cuts in the reserve ratio and lending rates together is an attempt to stabilize growth and control financial risk.

"We still have great pressure from growth stabilization, and it is necessary to maintain a proper monetary policy, as the second half will be the crucial period for an economic rebound and structural reform."

Lian Ping, chief economist at the Bank of Communications, said that room for further interest rates cuts is now very limited. "Whether to further lower the reserve ratio will depend on capital flows, and it is likely we will see another small cut in the future."

Lu Zhengwei, chief economist at Industrial Bank, said that downward economic pressure remains, adding that there was a risk of GDP growth below 7 percent.

The "double cuts" will also support a rise of the stock market on Monday, Lu said.

The benchmark stock index suffered the worst single-day decline in seven years at Friday's close, as the Shanghai Composite Index tumbled by 7.4 percent, to close at 4,192.87.