China cuts how much banks need to set aside as reserves to keep growth on track

A pedestrian walks past the People's Bank of China in Beijing.
A pedestrian walks past the People's Bank of China in Beijing.PHOTO: BLOOMBERG

BEIJING (AFP, BLOOMBERG) - China's central bank on Monday cut the proportion of funds banks must set aside as reserves, according to a statement, in the latest attempt to keep growth on track in the world's second largest economy.

The People's Bank of China, the central bank, said it would trim the so-called "reserve requirement ratio" by 0.50 percentage points.

Governor Zhou Xiaochuan highlighted scope for further action if needed when he spoke ahead of the Group of 20 meeting in Shanghai on Friday.

His co-host, Finance Minister Lou Jiwei, said China will expand its fiscal deficit to support structural reforms to the economy, which slowed to a 6.9 percent growth pace last year, the weakest since 1990.

The PBOC has also been trying to restore stability to the nation's currency as capital flows out at a record pace. Reductions to the required reserve ratio -- which allow banks to lend more -- help compensate for the departure of capital.

The central bank said it lowered the rate to guide stable and appropriate growth in credit and create appropriate monetary and financial conditions for supply-side structural reform, according to a statement on its website.