BEIJING, April 15 (BNA) China said on Friday it would cut the amount of cash that banks must hold as reserves for the first time this year, while releasing about 530 billion yuan ($83.25 billion) of long-term cash to support a sharp slowdown in economic growth.
The People’s Bank of China (PBOC) said on its website that it will cut the reserve requirement ratio (RRR) for all banks by 25 basis points, effective April 25, but analysts said that may not yet be enough to reverse that. slowing down, Reuters reported.
Growing global risks from war in Ukraine and within China, spreading COVID-19 lockdowns and a weak real estate market caused disruptions in the world’s second largest economy that soon spilled over into global supply chains.
China’s exports, the last major driver of growth, are also showing signs of exhaustion, and some economists say the risks of a recession are increasing.
“I don’t think this aspect ratio cut is of great importance to the economy at this point,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting that it was lower than what markets had expected.
“The main challenge for the economy is the Omicron outbreak and lockdown policies that restrict mobility. More liquidity may help the margins, but it doesn’t address the root of the problem,” he said.
The People’s Bank of China (PBOC) said the recent reduction in the required reserve ratio would boost long-term funds for banks, enabling them to increase support for industries and companies affected by the COVID-19 outbreak, and reduce costs for banks. It will reduce the annual financing costs of financial institutions by 6.5 billion yuan.
The People’s Bank of China (PBOC) will also continue to maintain broad-based liquidity stability, while keeping a close eye on inflationary trends and policy changes made by developed countries.
For city commercial banks that do not have cross-county business and rural commercial banks with an interest rate of more than 5%, they are entitled to an additional 25 basis point reduction.
The central bank said that the weighted average average reserve ratio of financial institutions will be reduced to 8.1% after the cut.
Ting Lu, Nomura’s chief China economist, expects to cut the reserve ratio by 25 basis points before the end of the year, likely before mid-2022, before cutting the required reserve ratio for some major banks that still have relatively high reserve ratios.
“We expect the People’s Bank of China (PBOC) to focus on increasing its direct credit support to small and medium-sized enterprises, the agricultural sector, green investment, technology and elderly care via MLF (Medium Term Lending Facility), re-lending and re-discounting,” Lu said.
The cut, which followed a widespread cut in December, was widely expected after China’s cabinet said on Wednesday that monetary policy tools should be used in a timely manner to boost growth.
The People’s Bank of China (PBOC) also started cutting interest rates, while local governments sped up infrastructure spending and the Finance Ministry pledged further tax cuts.
China’s economy rebounded strongly from the recession caused by the epidemic in 2020, but slowed down over the course of 2021 due to continued weakness in the property market and strict measures to contain the outbreak of COVID-19, which has hurt consumption.
The government’s determination to stem the recent spread of record cases of COVID-19 has clogged highways and ports, stranded workers and closed countless factories — disruptions tearing apart global supply chains for goods ranging from electric cars to iPhones.
China’s imports unexpectedly fell in March as restrictions hampered shipping access and weakened domestic demand, while export growth also slowed. Contracting for the activity of the factories and services sector.
The government is targeting economic growth of around 5.5% this year as headwinds mount, but some analysts say it may now be difficult to achieve without more aggressive stimulus measures.
With other major central banks like the US Federal Reserve preparing or already doing so aggressively, more robust easing in China could stimulate destabilizing capital outflows as investors funnel money into higher-yielding assets.
Earlier on Friday, the People’s Bank of China (PBOC) kept the interest rate of its medium-term lending facility unchanged for the third consecutive month, as expected.
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