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Headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing
By Stella Qiu and Kevin Yao
BEIJING, April 15 (Archyde.com) – China announced on Friday it would cut the amount of cash banks must hold as reserves, the first such move this year to free up 530 billion yuan ($83.25 billion) in liquidity to long-term in order to cushion the sharp economic slowdown.
The People’s Bank of China (PBOC) said on its website that it would lower the reserve requirement ratio (RRR) for all banks by 25 basis points (bps), starting April 25, although analysts said the decision might still be insufficient to reverse a crisis.
Rising global risks stemming from the war in Ukraine, shutdowns due to COVID-19 outbreaks and a weak real estate market are convulsing the world’s second-largest economy, a situation that is rapidly spreading to supply chains. international.
Exports from China, a key driver of growth, are also showing signs of deterioration, and some economists say the risks of a recession are rising.
“I don’t think this RRR cut matters that much for the economy at this stage,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting the drop was smaller than markets expected.
“The main challenge facing the economy is outbreaks of omicron cases and lockdown policies that restrict mobility. Greater liquidity can help at the margin, but it does not address the root of the problem,” he explained.
The PBOC said the latest RRR cut would boost long-term funding for banks, allowing them to increase support for industries and businesses affected by COVID-19 outbreaks and reduce costs for financial institutions.
The move cuts financial institutions’ annual funding costs by regarding 6.5 billion yuan.
The central bank also said it will continue to keep liquidity broadly stable, while closely watching inflation trends and policy changes made by developed countries.
For urban commercial banks that do not have cross-provincial business and rural commercial banks that have an RRR of more than 5%, there will be a right to an additional haircut of 25 bp. The weighted average RRR for financial institutions will drop to 8.1% following the move, the central bank said.
The reserve cut, which follows an extended reduction in December, was widely expected following China’s cabinet said on Wednesday that monetary policy tools should be used in a timely manner to boost growth.
The PBOC has also started cutting interest rates, while local governments have increased spending on infrastructure and the Finance Ministry has promised more tax cuts.
China’s economy recovered strongly from the pandemic-induced crisis in 2020, but cooled down over the course of 2021 due to persistent property market weakness and strict measures to contain COVID-19 outbreaks, which hurt the consumption.
(Additional reporting by Ellen Zhang and the Beijing newsroom. Editing in Spanish by Marion Giraldo)
