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China Cuts Bank Reserve Ratio

BEIJING -- China's central bank will lower the ratio of funds that banks must hold as reserves in a move that frees tens of billions of dollars for lending and aims to help spur slowing economic growth.

The reserve requirement ratio for major commercial banks will be decreased Friday to 20.5% from 21%, the People's Bank of China said Saturday in a one-sentence notice on its Web site.

The cut frees money for lending at a time when the growth rate is expected to drop from last quarter's 8.9% to closer to 8%.

The cut is the second in two months. The bank had pushed the rate to a record 21.5% in June after consumer prices rose by a three-year high of 5.5% the previous month.

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Consumer prices rose by an unexpectedly strong 4.5% over a year earlier, up from December's 4.1%. Food prices shot up 10.5%, accelerating from the previous month's 9.1%.

The spike in inflation could complicate efforts by Chinese leaders to gradually ease controls to boost growth and create jobs. Regulators are moving cautiously, however, avoiding interest rate cuts and retaining lending controls imposed to cool an overheated housing market.

China rebounded quickly from the 2008 global crisis with a flood of stimulus spending and bank lending that ignited a speculative boom pushing up stock and housing prices. New policies are being put in place to help the working poor and exporters hit by a fall in global demand.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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