China Cuts Reserve Requirement Ratio To Spur Liquidity
January 01 2020 - 11:08PM
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China's central bank reduced the amount of cash that banks
should set aside as reserves to spur liquidity ahead of the Spring
Festival.
The People's Bank of China on Wednesday lowered the reserve
requirement ratio, or RRR, by 50 basis points, with effect from
January 6. The RRR cut will release CNY 800 billion liquidity into
the financial system.
The bank had reduced RRR three times last year.
The ratio for big banks was reduced to 12.5 percent and that for
smaller banks to 10.5 percent.
The PBoC said the reduction will increase the source of funds
available for financial institutions and cut the cost of funding,
which will help alleviate the stress on small and micro
enterprises, the bank noted.
The bank added that the injection will bring more funds ahead of
the Spring Festival and the liquidity in the banking system will be
kept stable.
Julian Evans-Pritchard, an economist at Capital Economics, said
the latest RRR cut will ease liquidity conditions in the short-run,
but will need to be followed by further cuts to the PBoC's policy
rates in order to result in a sustained decline in interbank
rates.
With the planned scale of fiscal stimulus this year unlikely to
be sufficient to stabilize growth, the PBoC will have to lean on
monetary policy more than most anticipate in the coming quarters,
the economist added.
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