China announced on Friday the reduction of the mandatory reserve ratio for banks with the central bank, with the aim of liberating billions of liquid dollars, amid escalating fears of the consequences of the closure measures due to Covid, which disrupted the work of companies in the country.
The People’s Bank (Central) of China said that it will reduce the reserve requirement ratio by 0.25 percentage points for most banks as of April 25, and by 0.5 percentage points for small banks, at a time when China is battling the worst outbreak of the Corona virus since the beginning of the pandemic.
In a statement, the bank indicated that this step will provide regarding 530 billion yuan ($83 billion) of long-term liquidity to be injected into the economy.
The spread of the Corona virus in China has led to the imposition of closures in many cities in recent weeks, so that officials adhere to the zero-Covid policy to eliminate any outpost when it appears.
This situation forced factories to stop their operations, such as car manufacturers who warned this week of disruption to production, in addition to the announcement of major ports in Shanghai that they were unable to work due to the accumulation of goods.
The Chinese central bank said that the main goal of reducing the reserve requirement rate is to “guide financial institutions to use funds from the reserve to support industries and small and medium-sized enterprises that have been severely affected by the pandemic.”
Analysts said the move would have a limited impact on the slowdown in the economy.
“Reducing the reserve requirement should lower interest rates on loans, which might remove some pressure from debt-burdened borrowers,” said Julian Evans-Pritchard, an expert on China economics at Capital Economics.
“However, applying this measure alone helps slightly to boost lending growth,” he added.
Que Zhang, chief economist at Pinpoint Asset Management, said the cut was less than the market had expected, noting that injecting “more liquidity may help the margins, but it does not address the root of the problem.” (AFP)
