Policy· Business

PBoC cuts banks’ reserve ratio, USD 126 bln to shore up flagging economy

minutes 2019/09/09 08:10:54
PBoC,reserve requirement ratio, China-US trade war

Sep 09, 2019 (China Knowledge) - The People’s Bank of China (PBoC) announced last Friday to lower the reserve requirement ratio (RRR) by 50 basis points (bps) for all banks on 16 September. The move is expected to inject RMB 900 bln (USD 126 bln) in liquidity for shoring up the slowing Chinese economy.

It is the third time this year that the central bank slashed how much banks required to hold as reserves, and it is estimated to release the largest amount of funds so far in the current easing cycle. The last cut in May pumped about USD 40 bln into the Chinese economy and a previous round of stimulus in January injected about USD 112 bln.

The RRR for large banks is to be lowered to 13.0%.  Besides 50 bps cut for all banks which is to release RMB 800 bln, an additional 100 bps cut is set for qualified city commercial banks that operate only within the provincial-level regions. The additional cut will inject RMB 100 bln into the banking system and will be carried out into two phases, effective on 15 Oct and 15 Nov, respectively.

The latest round of stimulus comes as China is grappling with the mounting pressure from the China-US trade disputes and slowing domestic economic growth.

The Trump administration has imposed new tariffs on Chinese goods from 1 Sep and threatened more measures from 1 Oct and 15 Dec. Trade tensions have weighed on the Industrial output growth which fell to a 14-year low in July. Meanwhile, China’s economic growth for the second quarter of 6.2% already hit a 30-year low, but analysts expect an even lower growth rate for this quarter.

China’s central bank said it will keep up a prudent monetary policy and make sure sound counter-cyclical adjustments and abundant liquidity are in place.

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