China Cuts Reserve Ratio After Data Signals Slowdown

BEIJING (Dow Jones)--China's central bank on Saturday lowered the level of reserves that banks must hold, a move to support growth after a spate of data earlier this week revealed weakening economic momentum.

The People's Bank of China said Saturday it will cut the reserve-requirement ratio by 0.5 percentage points, effective from May 18, which will free up funds to be loaned out by the banking system.

It is the third cut in the reserve ratio so far in the current cycle of monetary-policy loosening, with the previous two cuts in November and February.

The ratio, or the level of deposits that banks must hold in reserve rather than lend out, will decline to 20% after the latest cut takes effect.

"It is a signal to the public and the markets that they are aware of the situation and they will keep loosening policy, which is much needed," said Goldman Sachs economist Yu Song.

On Friday, China's National Bureau of Statistics said that industrial production rose 9.3% from a year earlier in April, down sharply from 11.9% in March, and substantially undercutting expectations for an acceleration to 12.2%.

Similarly, April data on bank lending, fixed-asset investment, exports and imports all came in lower than expected, indicating that the Chinese economy was slowing across the board.

Song said he expects Beijing to follow through on the cut with additional measures to support growth. In particular, he sees moves to boost investment, especially with spending on infrastructure projects.