China cuts banks’ reserve ratios again , Latest Business News - The New Paper

China cuts banks’ reserve ratios again

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BEIJING : China's central bank said yesterday it was cutting the amount of cash that all banks must hold as reserves, releasing around 800 billion yuan (S$155 billion) in liquidity to shore up the slowing economy.

The People's Bank of China (PBOC) said on its website it will cut banks' reserve requirement ratio (RRR) by 50 basis points, effective Jan 6. The move would bring the level for big banks down to 12 per cent.

The PBOC has cut RRR eight times since early 2018 to free up more funds for banks to lend as economic growth slows to the weakest pace in nearly 30 years.

While recent data has shown signs of improvement, and Beijing and Washington have agreed to de-escalate their long trade war, analysts are unsure if either will be sustainable.

Premier Li Keqiang raised expectations of an imminent cut in a speech in late December, saying the authorities were considering more measures to lower financing costs for smaller companies, including broad-based and "targeted" RRR reductions aimed at helping more vulnerable parts of the economy.

Freeing up more liquidity now could also ease the risks of a credit crunch ahead of the long Chinese New Year holidays later this month, when demand for cash surges. Record debt defaults and problems at some smaller banks have already added to strains on China's financial system.

The PBOC said it expects total liquidity in the banking system to remain stable ahead of the Chinese New Year.

China plans to set a lower economic growth target of around 6 per cent in 2020, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.

Growth has cooled from 6.8 per cent in 2017. - REUTERS