Reserve ratio to be cut again in China

China takes another step to shore-up its beleaguered banking sector.

The People’s Bank of China, the central bank, will lower the reserve requirement for commercial banks by 50 basis points on May 18. It will be the second time it has done so this year in an ongoing campaign to inject more market liquidity and strengthen the economy.

The cut is expected to release about US$63.4 billion into the market. After the cut, the reserve requirement ratio for major banks will stand at 20%. It will come to 16.5% for small and medium-sized banks.

The new cut in the reserve requirement ratio is mainly intended at countering capital outflows that could threaten current monetary policies.

This action also reflects the unstable condition of China’s economy and the need for timely adjustments in monetary policies, said one analyst.

In April, China’s industrial production grew 9.3%, the lowest growth in three years. Retail sales growth slowed to 14.1% from 15.2% in March. Export growth dropped to 4.9% from 8.9% one month earlier.

China's foreign exchange reserves dropped by US$4.69 billion from February to March, the first monthly decline since December 2011. Analysts said the reduction was partly due to short-term capital outflows.