China Unexpectedly Cuts Reserve Ratio For Banks, Injecting $73BN To Stimulate Economy
Early Friday, China’s central bank surprised by announcing an unexpected cut to the amount that banks set aside for deposits by 25 basis points, vowing to keep ample liquidity in the interbank system and better fund the real economy.
The People’s Bank of China reduced the reserve requirement ratio for almost all banks by 0.25 percentage points, effective from March 27, it said in a statement on Friday. The PBOC last cut the RRR in December, by the same magnitude. The cut, effective March 27, is expected to inject 500 billion yuan ($72.6 billion) worth of liquidity into the market, while the average reserve requirement ratio of Chinese financial institutions will be lowered to 7.6 per cent.The RRR cut comes just days after China’s new government took office and the freshly inaugurated Premier Li Qiang pledged to achieve an annual economic growth target of around 5% this year.
“The PBOC will keep monetary policy targeted and powerful,” the central bank said in a statement adding that “We’ll provide better support for key areas and weak links, refrain from a big stimulus … and concentrate on pushing for high-quality development.”
Economists said the cut was aimed at ensuring liquidity in the banking system to sustain the rapid pace of lending seen in January and February, yet which led to modest economic results as discussed earlier this week.
China’s consumer spending and investment rebounded in the first two months of the year after pandemic restrictions were dropped in December, according to recent official data. But the recovery remains uncertain, with unemployment still elevated, property investment continuing to contract and falling exports dragging on industrial output.
“It seems that the central bank is not going to slow the pace of credit growth as people feared,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd.
The timing of the cut could be due to concerns that credit growth could slump in April, following the completion of financing for a number of government-led investment projects early this year, Xing added. The yuan pared an advance of as much as 0.6%, trading 0.1% stronger at 6.89 in the onshore market after the PBOC’s move.
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