China Opts to Activate Credit as Economy Declines

China Opts to Activate Credit as Economy Declines

The People's Bank of China (PBOC) reduced the amount of reserved cash banks must hold on Saturday, enhancing the lending capacity by an estimated 350-400 billion yuan ($55.6-$63.5 billion) with a purpose of starting credit creation as China faces a fifth quarter of slowing growth in a row.

PBOC would like to ease policies to protect the world's fastest-growing economy against global economic crisis.  The cut, which was announced late Saturday evening, purposes to enhance the confidence of domestic stock investors.

"It's a very positive move for the stock market, and it will create a bullish stock market," research head of Shenzhen-based Yingda Securities, Li Daxiao, said.

The PBOC cut banks' reserve requirement ratio (RRR) by 50 basis points to 20.5 percent, which takes into effect next Friday, after continually disregarding market expectations for such a move.

Analysts said that if capital investments remain unstable and bank lending continues to slow down, the central bank would have no option but to cut RRR further.

According to the latest Reuters poll, China's economy would likely to slow down considering its annual growth rate has declined having an annual growth rate of 8.9 percent in the previous quarter to 8.2 percent in the first quarter.

Posted by James Fried on Monday February 20 2012, 7:19 AM EST. Ref: reuters. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0