China Cuts Banks’ Reserve Requirement as Economy Slows

China’s central bank said on Friday it will cut the amount of cash banks must hold as reserves, releasing about 530 billion yuan (over $83bn) in liquidity to bolster economic growth

 

China’s central bank said on Friday it would cut the amount of cash that banks must hold as reserves for the first time this year – releasing about 530 billion yuan ($83.25 billion) in long-term liquidity to bolster slowing economic growth.

Heightened global risks from the war in Ukraine, widespread Covid-19 lockdowns and a weak property market are causing convulsions in the world’s second-largest economy that are quickly spilling over into global supply chains.

China’s exports, the last major growth driver, are also showing signs of fatigue, and some economists say the risks of a recession are rising.

The People’s Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for all banks by 25 basis points (bps), effective from April 25.

The central bank said it would also cut the RRR by an additional 25 bps for some smaller rural and urban commercial banks.

An imminent RRR cut was widely expected after the State Council, the country’s cabinet, said on Wednesday that monetary policy tools should be used in a timely way to bolster growth.

The RRR cut, which follows a broad-based reduction in December, marks the latest step by Chinese policymakers to cushion the sharp slowdown in the world’s second-largest economy.

The central bank has also started cutting interest rates, while local governments have expedited infrastructure spending and the finance ministry has pledged more tax cuts.

But some market watchers, such as Nomura, say Beijing’s room to cut policy rates is limited.

With other major central banks like the US Federal Reserve set to aggressively raise interest rates others already doing so, more forceful easing in China could spur potentially destabilising capital outflows as investors shift money to higher yielding assets.

Earlier on Friday, the PBOC left borrowing costs on medium-term policy loans unchanged for a third straight month, as expected.

 

• Reuters with additional editing by Jim Pollard

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.