(Yicai Global) April 20 -- The more than CNY1.1 trillion (USD172 billion) in profit that China’s central bank plans to pay the central government this year will prove to be a greater economic stimulus than cuts in the amount of cash banks must hold in reserve, according to an official.

The profit the People’s Bank of China hands over goes directly to improving balance sheets and people’s incomes, boosting demand, whereas a cut in the reserve requirement ratio increases the amount of funds banks can lend, but does not necessarily translate into credit growth, Wang Yiming, a member of the bank’s monetary policy committee, told Yicai Global yesterday.

As of mid-April, the PBOC has handed over CNY600 billion (USD93.6 billion) in profit to the central government, equivalent to lowering the RRR by 25 bips, according to the bank. The funds will mainly go to ease pressure on local governments arising from lower fiscal revenues, the PBOC and the finance ministry said on March 8.

The central bank has been expanding liquidity in the financial system this year amid a weakening economic outlook. Last week it announced a cut in the RRR for commercial banks by 25 basis points, effective April 25, to drive a steady decrease in borrowing costs.

“In the face of the new downward pressure on the economy, the PBOC must speed up its profit handover as much as possible so the funds can be put to use without delay,” said Wang, who joined the bank’s monetary policy committee in March last year.

He also said the PBOC will use monetary policy tools to keep liquidity in the banking system reasonable and sufficient, further supporting the economy.

Editors: Tang Shihua, Emmi Laine, Xiao Yi