China's RRR cut not start of strong stimulus: official

The universal reserve requirement ratio (RRR) cut on Thursday is not the start of a strong stimulus for the economy, a senior official of China's central bank told Xinhua on Thursday.

The cut was an ordinary policy operation by the People's Bank of China (PBOC) based on liquidity conditions and the economic situation, Lu Lei, head of the PBOC's research department, said in an interview.

The central bank lowered the RRR, the minimum level of reserves banks must hold, by 0.5 percentage points from Feb. 5, the first universal RRR cut since May 2012.

The upcoming Spring Festival is a factor, as funding shortages occur every year around this time in China due to strong cash demand. Taking the current position of foreign exchange reserves into account, open market operations alone are not adequate to fill the funding gap, he added.

Lu denied that the RRR cut represented a policy shift, noting the central bank conducts operations by sticking to the principle of a balance between tight and loose, in line with economic indicators.

The PBOC increased support to targeted areas, cutting the RRR by an extra 0.5 percentage points for qualified banks lending to small firms, the farming sector and major water projects.

Lu noted that the extra targeted RRR cut reflects the government's desire to restructure the economy. Endi