China cuts banks’ reserve limits

China’s central bank yesterday announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the US.

The reserve requirement cut — the fourth by the People’s Bank of China (PBOC) this year — comes as Beijing has pledged to expedite plans to invest billions of dollars in infrastructure, as the economy shows signs of cooling further.

Reserve requirement ratios (RRRs) — currently 15.5 per cent for large commercial lenders and 13.5 per cent for smaller banks — would be cut by 100 basis points effective October 15, PBOC said, matching a similar-sized move in April.

Economists have predicted further cuts ahead.

Beijing has stepped up liquidity support across the financial system this year, as policymakers have focused on calming fears of capital outflows and sought to soothe battered markets even as anxiety grows that a heated trade war with the United States could deal a damaging blow to the broader economy.

China’s yuan has faced strong selling pressure this year, losing over 8 per cent between March and August at the height of market worries, though it has since cut losses as authorities stepped up support.

Yesterday’s move will inject a net 750 billion yuan (Dh401 billion) in cash into the banking system by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility loans.