China slashes banks’ reserve ratio requirements again

BEIJING: China’s central bank said it was cutting the amount of cash that banks have to hold as reserves for the fifth time in a year, freeing up $116 billion for new lending as it tries to reduce the risk of a sharp economic slowdown.
The cut comes amid mounting worries about the health of the world’s second-largest economy, which is facing both slowing demand at home and punishing US tariffs on its exports.
Global stock markets sold off on Thursday after a warning from tech giant Apple Inc about slowing China sales, while data this week showed manufacturing activity shrank in December for the first time in more than two years.
The announcement came just hours after Premier Li Keqiang said China would take further action to bolster the economy, including reserve requirement ratio (RRR) cuts and more cuts in taxes and fees, highlighting the urgency to cope with increasing headwinds.
“This speedy RRR cut with great intensity fully demonstrates the determination of policymakers to stabilise growth,” said Yang Hao, an analyst at Nanjing Securities.
“At present, the economy is facing very big downward pressure amid internal and external troubles.”
The cut in RRR is the first in 2019 by the People’s Bank of China (PBOC). It cut the ratio for all banks, freeing up a net 800 billion yuan ($116.51 billion) after lenders use some of the 1.5 trillion yuan in liquidity released to pay back maturing medium-term loans.
The size of the cut was at the upper end of market expectations, and the net funds released would be the largest amount in the five cuts since last January.
“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.”
RRRs — currently 14.5 per cent for large institutions and 12.5 per cent for smaller banks — will be lowered by a total of 100 basis points in two stages, the PBOC said. — Reuters