PBOC plans to cut RRR

China's central bank will cut the reserve requirement ratio by half a percentage point for commercial banks that have lent a certain portion of their loans to agriculture-related firms as well as micro and small enterprises.

Beginning on June 16, the reduction will apply to banks whose new loans to the farming sector or micro and small enterprises last year exceeded half of their total new lending in 2013.

The People's Bank of China also is requiring that the banks' outstanding loans to the farming sector or MSEs at the end of last year should exceed 30 percent of their total outstanding loans that year, the PBOC said in a statement published on its website on Monday.

About two-thirds of the city commercial banks, 80 percent of the non-county rural commercial banks and 90 percent of the non-county rural cooperative banks will meet the above requirements, the PBOC said.

Currently, the reserve requirement ratio is 20 percent for large banks and 16.5 percent for smaller ones. Many economists believe the ratio is too high to release sufficient liquidity into the slowing economy.

Wen Bin, director of macroeconomic research at the Bank of China Ltd's Institute of International Finance, estimated that the targeted reduction of the reserve requirement ratio will bring new loans worth about 500 billion yuan ($80 billion).

"The reduction will be highly targeted and effective," Wen said.

"It will support the real economy better with growth in lending while keeping the money supply at a reasonable level at the same time."

Unlike large infrastructure, housing and industrial projects, MSEs do not play a significant role in fueling economic growth, but they will create a large number of jobs and help restructure the Chinese economy, especially by promoting the development of the service sector, Wen said.

Rural commercial banks have long been serving agriculture-related firms and MSEs as their major clients. By covering mainly rural commercial banks rather than large State-owned banks and joint-equity banks, the targeted reduction will bring new loans effectively to such companies, he added.

Recent official data indicate that the Chinese economy is stabilizing gradually. China's trade surplus surged in May as export increased 7 percent to $195.47 billion year-on-year, while imports dropped 1.6 percent to $159.55 billion, the General Administration of Customs announced on Sunday.