China’s central bank said it lowered the reserve ratio by 50 basis points. That reduces the ratio for the biggest banks to 21 percent from a record high 21.5 percent, freeing up funds that could be used for lending to cash-strapped small firms.
"It’s a surprising move — the market was not expecting the central bank to (cut RRR) so fast," said Shi Chenyu, an economist with the investment banking unit of Industrial and Commercial Bank ofChina.
"The move sends a clear message that the central bank is ready to relax its policy stance."
The central bank, which has already loosened credit curbs to help cash-starved small firms, has pledged to "fine-tune" policy if needed. The new level becomes effective on December 5, the central bank said in a short statement on its website.
How long ago was China’s primary focus curbing inflation and rebalancing the export driven economy. Was that two months? At the time its seemed clear that China was prepared to do that on the backs of Small and Medium Sized Enterprises (SME) in an effort to maintain stability for State Owned Enterprises (SOE).
Being a bloodless technocrat that was a move I could understand. It was no very “free markety” or progressive. However, China could ill afford instability in the SOE and Municipalities at the same time if the central government was to maintain legitimacy.
Now, it looks like they are reversing course and signaling more reverse. My sense is that they are hunkering down for the worst out of Europe.