Buzz Update Economic Watch: China to reduce reserve requirements ratio TOU

Buzz Update Economic Watch: China to reduce reserve requirements ratio

 TOU

Economic Watch: China to reduce reserve requirements ratio

Provided by © Xinhua

BEIJING, April 15 (Xinhua) – The Central Bank of China said on Friday that it has decided to reduce the Reserve Requirement Ratio (RRR) for financial institutions from April 25 in support of real economic growth and to reduce comprehensive financing costs.

The People’s Bank of China (PBOC) said in a statement that the RRR ratio would be reduced by 0.25 percentage points, excluding financial institutions that have already implemented the 5% RRR.

The cuts come after a similar wide-ranging reduction last December, when the state council meeting on Wednesday approved monetary instruments such as RRR cuts to increase banks’ credit input capacity. These tools strengthen financial support for virus-affected sectors and small organizations.

The PBOC said that reducing the amount of cash that banks must keep in reserve could release 530 billion yuan (approximately US $ 82.95 billion) in long-term liquidity.

Following the reduction, the central bank said the average RRR for Chinese financial institutions would be 8.1 percent.

The bank said the reduction was aimed at improving the financial structure of financial institutions and improving their ability to allocate funds to boost support for the real economy.

Financial institutions will be guided to utilize the funds released in support of micro, small and medium enterprises severely affected by the epidemic.

The PBOC said the cuts could cut financial institutions by 6.5 billion yuan a year in funding costs.

“The RRR reduction will help boost market expectations, boost market confidence, expand demand and stabilize economic fundamentals against the triple pressures of declining demand, disruptive supply and weak expectations,” said Wen Bin, chief analyst at China Minxheng Bank.

Wen also predicted that the reduction would boost stock market sentiment and contribute to the healthy growth of the property market.

To increase support for small and micro enterprises, the central bank said it would reduce the ratio of urban commercial banks, which operate exclusively in regional administrative areas, to rural commercial banks, which currently have a RRR of over 5 per cent, by another 0.25 per cent. And the agricultural sector.

The PBOC reiterated its stance on implementing prudent monetary policy, avoiding “flood-like” stimulus and making better use of monetary policy tools to adjust both monetary composition and monetary structure.

Stepping into 2022, the world’s second-largest economy is using its policy tools to mitigate the growing downward pressures caused by the recovery from the domestic epidemic and volatile global conditions.

China has previously said it would devise new policies such as deferring the payment of pension insurance premiums and providing more unemployment insurance funds to boost the real economy.

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