Construction workers stand on a platform as they install panels on the front of a new building in central Beijing February 15, 2012.
Construction workers stand on a platform as they install panels on a new building in central Beijing on Wednesday. China's fledgling real-estate investment fund market could see a surge of activity this year as property developers launch their own vehicles in a desperate bid to bridge an estimated $111 billion financing gap in the year ahead. A government-led clampdown on bank, bond, equity, and trust market financing for real estate has left developers with little choice other than to set up their own funds, which have raised barely 10 percent of the sum in the past two years that needs to be found to refinance maturing debt in 2012. However, the announcement on Saturday by the People's Bank of China -- the country's central bank -- that it is cutting the amount of cash that commercial lenders must hold as reserves for the second time in about three months may help the developers as it might provide the country's banking system with an estimated 400 billion yuan ($63.5 billion) in liquidity. REUTERS/David Gray

China's central bank cut the amount of cash that commercial lenders must hold as reserves on Saturday for the second time in about three months, the latest step to bolster the country's slowing economy.

The People's Bank of China (PBOC) is on the course of gentle policy easing to cushion the world's second-largest economy against stiff global headwinds, although it has been treading warily.

The PBOC delivered a 50-basis-point (bps) cut in banks' reserve requirement ratio (RRR), effective Feb. 24, after repeatedly defying market expectations of such a move.

It would cut the RRR for the biggest banks to 20.5 percent from 21 percent, injecting an estimated 400 billion yuan ($63.5 billion) into the banking system that could be used for lending.

It's not a big surprise. Although they [Chinese leaders] stress policy stability, an RRR cut is necessary. Trade and monetary data in January pointed to some downward pressure on the economy, said Hua Zhongwei, an economist at Huachuang Securities in Beijing. But policy easing will be gradual, given the central bank sounded cautious about inflation in its fourth-quarter monetary policy report.

Growth in China's once-turbocharged gross domestic product is likely to slow to 8.2 percent in the first quarter of this year from 8.9 percent in the fourth quarter of last year, according to the latest Reuters poll.

The central bank announced its first cut in RRR in three years last Nov. 30. That move took the rate down from a record 21.5 percent.

The lower reserve ratio has been followed by a gradual relaxation of some controls on credit at smaller regional institutions in recent months to support the slowing economy.

Investors had expected an RRR cut ahead of the Chinese Lunar New Year, but they were wrong-footed as the central bank opted for open-market operations to provide short-term cash for banks.

A Reuters poll conducted in January showed the central bank may cut the reserve ratio by a total of 200 bps throughout 2012 to 19 percent.

The government is reluctant to give the green light to another bout of big bank lending, with inflation risks lingering and, more importantly, policy makers determined to cool down the property sector to ward off a speculative bubble.

Few analysts believe the central bank will cut interest rates this year, with annual inflation staying stubbornly higher than the one-year deposit rate of 3.5 percent.

(Additional reporting by Kevin Yao in Beijing; Editing by Robert Birsel)

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