China slashes banks' reserve requirements again as economy slows

06 January, 2019, 22:10 | Author: Eric Barnett
  • SL_Premier Li

The required reserve ratio for banks will drop by 0.5 percentage point on January 15 and a further 0.5 percentage point on January 25, the People's Bank of China said on its website.

China made its first major monetary policy easing announcement of 2019 on Friday as Beijing prepared to roll up its up sleeves to battle a year that is expected to be filled with economic hardship as well as numerous other challenges at home and overseas, Trend reports referring to South China Morning Post.

RRRs - now 14.5 percent for large institutions and 12.5 percent for smaller banks - will be lowered by a total of 100 basis points in two stages, the PBOC said.

The central bank said China's economic growth is still within a reasonable range and it will continue to implement a prudent monetary policy, without engaging in massive stimulus.

Together, the new measures should inject about 800 billion yuan ($116 billion) into the world's second largest economy as growth slows and a trade war with the United States takes its toll.

In addition to the central bank's numerous support measures, the government has also ramped up spending on infrastructure to rekindle sluggish demand and investment, but the moves will take some time to kick in.

China's economy grew at an annualized rate of 6.5 percent in the July-September period of 2018.


The government maintains last year's economic growth will be on target at around 6.5 per cent, slowing from 6.9 per cent in 2017. The reserve requirement ratios (RRRs) are now 14.5 percent for large banks and 12.5 percent for smaller banks.

This RRR standard adjustment has also triggered the market's expectation of further cuts.

Liao Zhiming, an analyst at Tianfeng Securities, expects the move will release about 600 to 700 billion yuan in liquidity.

The premier made the comments at a meeting with officials of the country's banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China, and China Construction Bank.

Further cuts in the RRR had been widely expected this year, especially after a spate of weak data in recent months showed China's economy was continuing to lose steam.

Lian Ping, chief economist at the Bank of Communications, said the pressure of the economic slowdown would show up in the first half of 2019 when the existing U.S. tariffs on US$250 billion of Chinese goods would bite deeper into the economy.

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