China Starts Monetary Easing: Cut Reserve Ratio by 50 Basis Points

From Reuters:

China's central bank cut the reserve requirement ratio for its commercial lenders on Wednesday for the first time in nearly three years to ease credit strains and shore up an economy running at its weakest pace since 2009.

Purchasing managers' data on Thursday could confirm the pressure on China's manufacturers from the global slowdown after a flash PMI from HSBC last week suggested the sector was shrinking.

As recently as the middle of 2011, China was still tightening monetary policy to combat stubbornly high inflation, which rose in July to a three-year high of 6.5 percent.

However, as the economy felt the chill of a slowdown in global activity and inflation eased, Beijing adopted a policy of "fine tuning," which targeted parts of the economy, such as loosening credit for cash-starved small firms.

The cut in the reserve ratio was the first since December 2008 and marks a monetary policy shift to an easing bias.

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