China’s central bank on Friday said it was cutting the amount of cash that banks must hold as reserves for the fifth time in the past year — freeing up US$116 billion for new lending as it tries to reduce the risk of a sharper economic slowdown.
The support measures come amid mounting worries about the health of the world’s second-largest economy, which is facing slowing demand at home and punishing US tariffs on its exported goods.
The cut in banks’ reserve requirement ratios (RRR) is the first this year by the People’s Bank of China (PBOC).
The RRRs — currently 14.5 percent for large institutions and 12.5 percent for smaller banks — would be lowered by a total of 100 basis points in two stages, the PBOC said.
The cuts would be effective on Jan. 15 and Jan. 25, and come ahead of the long Lunar New Year celebrations when cash conditions are often tight.
The moves would free up a net 800 billion yuan (US$116.46 billion) after banks use some of the 1.5 trillion yuan in liquidity released into the financial system to pay back maturing medium-term loans.
“Policy easing will be stepped up further over coming months,” Capital Economics said in a research note. “With credit growth still slowing and, typically, a six-month lag before any turnaround in credit affects the economy, worries about the outlook for China will persist for several months yet.”
Further cuts in the RRR had been widely expected this year, especially after a spate of weak data in recent months showed China’s economy was continuing to lose steam.
The size of the move was on the upper end of market expectations, and the net funds released would be the largest amount in the five cuts since January last year.
The central bank said China’s economic growth is still within a reasonable range and it would continue to implement a prudent monetary policy, without engaging in massive stimulus.
“We will maintain reasonable and sufficient liquidity, maintain reasonable growth in the scale of money and credit and social financing, stabilize macro-leverage, and seek internal and external balances,” it said.
China’s economic growth is expected to have cooled to about 6.5 percent last year, in line with Beijing’s target, but down from 6.9 percent in 2017.
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