The People’s Bank of China (PBOC) yesterday said it would cut reserve requirement ratios (RRRs) to release about 280 billion yuan (US$41 billion) for some small and medium-sized banks, in a targeted move to help struggling companies amid an economic slowdown.
The cut in the amount of cash that banks must hold as reserves would be the smallest since January last year, when the Chinese central bank started its latest round of policy easing to support the world’s second-largest economy.
The cut, while widely expected at some point, was announced right before China’s stock market opened, and just hours after US President Donald Trump sharply escalated trade tensions between the world’s two largest economies.
The PBOC said in a statement that the reduction will take effect on Wednesday next week. The funds are to be used for loans to small and private companies.
The central bank said it would cut the RRR for about 1,000 rural commercial banks operating in counties to 8 percent, equal to the RRR for smaller rural credit cooperatives.
The move would help lower funding costs for small and micro firms, it said.
Small and medium-sized banks currently have RRRs ranging from 10 to 11.5 percent.
The PBOC has already delivered five RRR cuts since early last year, lowering the ratio to 13.5 percent for big banks and 11.5 percent for small and medium-sized lenders.
The central bank pumped out 3.35 trillion yuan in net liquidity through the five reserve cuts, according to Reuters calculations based on PBOC data and analyst estimates.
Just hours earlier, Trump issued a series tweets in which he complained that trade talks with China were proceeding “too slowly,” and that on Friday, he would raise tariffs on US$200 billion of goods to 25 percent from 10 percent.
His comments upended markets that had been enjoying a period of calm thanks to signs of robust growth in China and the US, and from previous comments from Trump and other senior US officials that trade talks were going well.
Some analysts believed the central bank was seeking to reassure investors unnerved by Trump’s latest comments.
“I think it is a move to calm the market, to offset the impact from the trade talks, telling you that ‘I can give some stimulus during the most difficult times, but I will not give too much’,” Singapore-based Commerzbank analyst Zhou Hao (周浩) said, adding that the PBOC’s targeted cut showed Beijing’s resolve to keep its debt level in check and China has made preparations in the event that the trade talks fail.
“I think the market had underestimated China’s determination to deleverage, while overestimating China’s willingness to reach a trade agreement,” he said.
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