Scope of targeted RRR cut stirs market

BEIJING - Much hope has been pinned on China's cautiously targeted reduction in banks' reserve requirement ratio (RRR) to gradually lift the economy. But news of the policy expansion emerged on the first day of its implementation raising doubts whether the move will have the desired effects.

More lenders make RRR cuts

Reserve ratio cuts to tackle slowdown

To enhance financial support to the real economy, the central bank specified last week that it will cut the RRR by 0.5 percentage points for banks engaged in proportionate lending to agricultural and small firms, along with a string of requirements attached for banks to be eligible for the narrow-based cut.

On Monday, the first day the policy went effective, the market was flooded with reports that several joint-stock banks, including China Minsheng Bank and Industrial Bank, had gained approval to cut the reserve ratio.

The news was interpreted as an expansion of the targeted policy as, according to Barclays, the banks would not have met the central bank criterion unless certain parameters were relaxed.

In an immediate response to the market stir, the central bank clarified on its official Weibo account that the scope for the targeted RRR cut had not been widened, stating that banks that meet the previously stated requirements include State-owned commercial banks and joint stock commercial banks.

Zhong Zhengsheng, a macro economy analyst with Guosen Securities, said the phenomenon showed the central bank has certain discretion over the implementation of the rules.

"There is a possibility that more joint stock commercial banks will join the RRR cuts," he noted.

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