– China’s Central Bank announced it will cut reserve requirement ratio (RRR) by 50 basis points (0.50%) in an effort of providing sufficient liquidity to the financial system.
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The RRR cut, which was widely expected by analysts, is the first across-the-board reserve ratio cut since October past year, when the central bank also lowered it by the same margin.
China’s central bank reduced the amount of cash that banks must hold as reserves for the fifth time since February, 2015, as it seeks to revive a stumbling economy.
China will continue to implement stable monetary policies, said Zhou Xiaochuan, governor of the People’s Bank of China, on Friday. The new policy will take effect on Tuesday and the total reserve ratio is 17 percent for most large Chinese banks now.
SHANGHAI SUMMIT: The main focus in the markets at the start of the week was the outcome of the weekend meeting of finance ministers and central bankers from the Group of 20 rich and developing countries.
China’s yuan edged down against the dollar on Monday as the central bank fixed a softer midpoint but continued to intervene to control the pace of currency’s depreciation, traders said.
The ICBC has been a major lender for green projects with 702.8 billion yuan of outstanding loans. The aim is clearly to boost growth in the economy to support the downward pressure. Even though the PBoC vowed no further devaluations in the nation’s currency, the renminbi, prior to the recent G20 summit, the currency took a blow, sliding to a 3-week low on the news. As an indication of the outflows, China’s foreign-exchange reserves plunged by $99.5 billion in January, to $3.23 trillion.
“Officials are making good on their promise at the G20 to pull all policy levers to stabilize growth”, says Frederic Neumann of the Hong Kong branch of HSBC Holdings Plc.
And while this trade always had its origins in the sort of cryptic “sell something to sell something” justification, markets in the U.S. are finally realizing that issues in China are issues in China. We believed the PBOC needed to cut RRR in March to offset headwinds in the economy.
“This shows the PBOC still has room to stimulate markets and the economy, if necessary”, Ryan Lam, Hong Kong-based head of research at Shanghai Commercial Bank Ltd., told Bloomberg News.
“The PBOC didn’t cut RRR earlier because it wanted to avoid sending too strong a signal to the market that could further weaken the yuan”, Li said. In addition, the sectors most sold off today – the high-beta technology and media sectors are not in the Beijing’s policy radar lately.
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But that type of funding comes with a high cost for Chinese banks, with interest rates at least 0.6 percentage point to one percentage point higher than the rates on official deposit reserves, estimates Zhou Hao, a senior economist at Commerzbank AG.
