PBoC lowers banks’ reserve requirements to spur growth
BEIJING: China’s central bank said yesterday it would cut the amount of cash that most banks must hold as reserves to lower financing costs and spur growth, amid concerns over a potential economic drag from an escalating trade dispute with the United States.
The reserve requirement cut, the fourth by the People’s Bank of China (PBoC) this year, comes after Beijing has pledged to expedite plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further, with investment growth slowing to a record low.
Reserve requirement ratios (RRRs) — currently 15.5 per cent for large institutions and 13.5 per cent for smaller banks — would be cut by 100 basis points effective October 15, said the PBoC.
The central bank will inject a net 750 billion yuan (RM452 billion) in cash into the banking system with the cut by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing mediumterm lending facility loans.
The RRR cut shows the central bank was probably worried about the impact of “external shocks” to markets, such as a speech recently by US vice-president Mike Pence, said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.
Weakening exports were already a drag on growth in the first half of the year after giving an added boost to the economy last year, highlighting the need for sustained strength in domestic demand if significant new US tariffs are imposed.
The “very timely” RRR cut was big enough to help boost confidence in the economy, said Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing think tank.