China’s Central Bank to Cut Banks’ Reserves

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China’s central bank says it would cut the amount of cash that banks must hold as reserves for the first time this year to help keep liquidity ample and support a nascent economic recovery.

Chinese leaders have pledged to step up support for the world’s second-largest economy, which is gradually rebounding from a pandemic-induced slump after coronavirus-related curbs were abruptly lifted in December.

The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points from March 27.

The move, which came earlier than financial markets had anticipated, follows data showing a gradual but uneven recovery in the economy in the first two months of the year and a stronger-than-expected credit expansion.

“At present, risks in the overseas banking sector are increasing and global liquidity is under pressure, and the external environment is becoming increasingly complex,”said Wen Bin, chief economist at China Minsheng Bank.

“In the first two months of this year, China’s main economic indicators showed a positive trend, but the overall recovery foundation is not yet solid.”

The central bank has yet to give an estimate of how much long-term liquidity will be released following the cut, which will allow banks to lend out more funds.

Analysts estimated that the move freed up over 500 billion yuan ($72.6 billion).

The central bank has promised to make its policy “precise and forceful” this year to support the economy, keeping liquidity reasonably ample and lowering funding costs for businesses.

It said the cut reflected its intention to “make a good combination of macro policies, improve the level of services for the real economy, and keep liquidity reasonably sufficient in the banking system.”

China’s new premier Li Qiang has pledged to push the overall economy to improve while fending off any major risks, state media reported on Friday.

The reduction follows a 25-bps cut for all banks in December.


Reuters/Hauwa Abu

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