China cuts reserve requirements for banks as economy slows

PBOCs Cut 25 Basis Points to Release About $83.25 Billion in Long-Term Liquidity

PBOCs Cut 25 Basis Points to Release About $83.25 Billion in Long-Term Liquidity

China said Friday it will reduce the amount of cash banks must hold as reserves for the first time this year, freeing up about 530 billion yuan ($83.25 billion) of long-term liquidity to prevent a sharp slowdown in economic growth. strengthen.

Increased global risks from the war in Ukraine, widespread COVID-19 lockdowns and a weak real estate market are causing convulsions in the world’s second-largest economy that are quickly spilling over into global supply chains.

Chinese exports, the last major growth engine, are also showing signs of fatigue, with some economists saying the risks of a recession are mounting.

The People’s Bank of China (PBOC) said on its website that it would cut the minimum reserve requirement ratio (RRR) for all banks by 25 basis points (bps) from April 25.

The central bank said it will cut the RRR by another 25 basis points for a number of smaller rural and urban commercial banks.

An imminent RRR cut was widely expected after the country’s cabinet said on Wednesday that monetary policy tools must be used in a timely manner to boost growth.

The cut in the RRR, which followed a broad cut in December, marks the latest move by Chinese policymakers to cushion a sharp slowdown. The central bank has also started cutting interest rates, while local governments have accelerated infrastructure spending and the Treasury Department has pledged more tax cuts.

But some market observers say Beijing has limited room to cut key rates.

With other major central banks, such as the US Federal Reserve, committed to aggressively raising interest rates or already doing so, stronger easing in China could fuel potentially destabilizing capital outflows as investors shift money into higher-yielding assets.

Earlier on Friday, as expected, the PBOC left medium-term policy borrowing costs unchanged for the third straight month.

www.thehindu.com

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