China sees room to lower reserve requirement ratio, PBOC official says

BEIJING (Reuters) – China still sees some room to lower the amount of cash banks must hold as reserves, a central bank official said on Thursday, adding that the lender will continue to implement policies to support the economic recovery.

“The reserve requirement ratio (RRR) cut at the beginning of this year is still showing its effect,” said Zou Lan, head of the People’s Bank of China’s (PBOC) monetary policy department, at media conference in Beijing.

The average RRR for financial institutions is around 7% at present, “so there is some room,” he added.

The PBOC made a 50-bps RRR cut for all banks that took effect on Feb. 5 to support a fragile economic recovery. But indicators showed China’s economy grew much slower than expected in the second quarter, dragged by a protracted property downturn and weak domestic demand.

Zou said that narrowing banks’ net interest margins would constrain any further cuts in the deposit and lending rates, adding the central bank will reasonably set the strength and pace of policy adjustments based on the economic recovery.

Goldman Sachs on Thursday expected the PBOC to deliver a 25-bps RRR cut in September and a 10-bps policy rate cut in the fourth quarter.

An official survey on Saturday showed China’s sprawling manufacturing activity sank to a six-month low in August, pressuring policymakers to press on with plans to direct more stimulus to households.