China cuts banks’ reserve ratios to support economic growth
Move to bolster bank lending comes amid ongoing trade war between Washington and Beijing
China’s central bank on Friday cut the ratio of reserves that lenders in the country are required to maintain, increasing banks’ ability to lend by about Rmb900bn ($126.4bn) just days after the US hit China with a fresh round of tariffs on manufactured goods.
Monetary easing by the People’s Bank of China has been widely anticipated by analysts, who have noted that the government must do more to support economic growth as tensions between the world’s two largest economies persist.
The lowering of the reserve requirement ratio — the third cut this year — means that banks are allowed to hold fewer reserves as a ratio of the amount they lend, effectively giving banks more room to make more loans.
The move will lower the ratio by 50 basis points for all banks. Several qualified banks will receive an RRR cut of 100 basis points.
The PBoC has made several similar cuts in recent years in the hope that bolstered lending capacity at banks will translate into stronger economic growth. A meeting of China’s State Council on Wednesday called for stronger measures to battle waning economic growth, creating strong anticipation for a cut to RRR.
“China is a little bit tight on liquidity . . . especially when China is faced with accelerating downward pressure on the economy,” said Jia Jinjing, professor on macroeconomics at Renmin University. “The RRR cut is within expectation.”