China Monetary Policy


People's Bank of China cuts the reserve requirement ratio

On 30 November, the People's Bank of China (PBOC) cut the reserve requirement ratio (RRR) for the first time since December 2008. The PBOC cut the RRR by 50 basis points to 21.0% for large banks and 19.0% for small banks. The RRR reduction represents a clear sign of new monetary policy easing and, according to analysts, the Chinese move was part of coordinated action with world's major central banks. Moreover, moderating inflation may prompt monetary authorities to further loosen monetary policy in order to support economic growth Meanwhile, new yuan loans totalled CNY 562 billion (USD 88 billion) in November, which was below the CNY 587 billion recorded in October but still overshot the CNY 550 billion expected by the market. The print represented a moderation despite both Premier Wen Jiabao's calls for banks to boost lending to small businesses and the China Banking Regulatory Commission's implementation, in early November, of a range of measures designed to give more support to companies that borrow less than CNY 5 million (USD 731,000). Analysts consider, however, that the impact of the measures has not been fully factored in. Finally, M2, the broadest measure of money supply in China, rose 12.7% year-on-year in November, which came in slightly below the 12.9% increase recorded in October, but still matched market expectations. The reading represents the lowest level in over ten years.

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