China cuts reserve requirement for five rural banks

China's central bank cut reserve requirements for five rural banks as part of long-standing efforts to support the rural economy, two sources with knowledge of the matter said on Tuesday. One of the sources said reserve rates for the five banks in the eastern province of Zhejiang - a cradle of private enterprises - were cut by 50 basis points to 16 percent after they were raised last year in response to a failure to lend more freely to agriculture businesses.
The sources declined to name the five banks but said the cut is effective from November 25. The central bank declined to comment. To nurture the rural economy, China's government has introduced the principle of "servicing the three arms of agriculture" - farmers, villages, and the farming sector - to boost financial services offerings to farmers.
However, Chinese banks have always shied from lending to the agriculture sector due to fears that small businesses are more liable to chalking up bad debt. Given the modest size of Chinese rural banks, traders say the latest cut would have little impact on financial markets, but it could fuel expectations that Beijing may lower reserve requirements in coming months for big banks.
Some investors are betting that a slowing Chinese economy and a deteriorating debt crisis in Europe, China's biggest export market, would lead Beijing to selectively ease monetary policy soon to support the economy. Already, there are signs China is selectively easing or fine-tuning policy to ward off the "chronic global recession" predicted by a top Chinese leader over the weekend.
Data earlier this month showed new yuan loans rebounding from 21-month lows to a four-month high, suggesting Beijing is relaxing restrictions on bank lending. The government has also stepped up support for small businesses by lowering taxes and boosting lending. To hold down interbank rates, the central bank has also used its money market operations to inject over 150 billion yuan into the financial system in the last three weeks.