China cuts banks' reserve ratios by 1% as economy slows

Andrew Cummings
January 7, 2019

The People's Bank of China said on Friday that reductions by 0.5 percentage points will be made on January 15th and again January 25th.

After four RRR cuts so far this year, the ratio for large banks dropped to 14.5pc in October, the lowest level since 2008.

China and the United States will hold vice ministerial level trade talks in Beijing on January 7-8, as they seek to end a dispute that is inflicting increasing pain on both economies and roiling global financial markets.

In addition to monetary policy easing, last week China allocated its local government debt quota "ahead of schedule" to accelerate infrastructure spending.


A further deceleration is seen this year, with some analysts forecasting growth will cool to almost 6 percent, which would mark China's weakest expansion since 1990.

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

"The central bank will continuously implement prudent monetary policy 'neither too tight nor too loose, ' and refrain from using a deluge of stimulus and focus on targeted adjustment to maintain sound and sufficient liquidity, facilitate rational growth in monetary credit and social financing and stabilize macro leverage ratio to create a proper monetary and financial environment for the country to pursue high-quality economic development and advance supply-side structural reform".

The measures will also included targeted RRR cuts aimed at supporting small and private companies, Li was quoted as saying in a statement on the website of the Chinese government.


This will allow banks to lend more capital to enterprises now classed as small businesses, and therefore free up more reserves from the central bank, with estimates ranging from 400 billion yuan to as much as 700 billion yuan.

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.

The reserve requirement ratios are now 14.5% for large banks and 12.5% for smaller banks.

A manufacturing purchasing managers' index released this week by Caixin dipped into contraction territory for the first time in 19 months, painting a gloomy outlook for the world's second largest economy, and effecting market sentiment.


Chinese financial stocks surged Friday as Premier Li Keqiang visited the nation's biggest banks and pledged more support for the economy.

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