China cuts reserve requirement ratio for second time this year

CHINA’S central bank cut the amount of cash lenders must hold in reserve for the second time this year to bolster an economic recovery that’s struggling to rebound.

The People’s Bank of China lowered the reserve requirement ratio for most banks by 25 basis points, according to a statement on Thursday (Sep 14). The weighted average RRR for banks will be 7.4 per cent after the cut, the statement says.

The reduction, which takes place from Friday, is to help maintain reasonably ample liquidity, the PBOC said.

China’s post-Covid recovery has been losing momentum since the second quarter, with July data showing weak consumer spending growth, sliding investment and rising unemployment. A trickle of recent indicators including inflation and exports point to a potential stabilisation in the economy, though the key question remains how long the momentum will last.

“The economy continues to recover and its internal driver keeps strengthening,” the central bank said.

The PBOC in August stepped up policy support with a surprise cut to the rate on its one-year loans – or medium-term lending facility – the second reduction this year. Most economists expect the PBOC to keep the rate unchanged on Friday. 

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Analysts had expected the central bank to take additional steps to ease policy, including through adjusting the RRR. The PBOC last lowered the RRR by 25 basis points for most banks in March.

A reduction in the ratio frees up cheap long-term cash for banks, allowing them to extend more loans to businesses and consumers.

The government set a fairly conservative economic growth target of around 5 per cent for this year, which economists expect Beijing will meet. BLOOMBERG