China cuts some banks’ reserve requirements to spur growth

The PBOC says the reserve requirement ratios cut would not create depreciation pressure on the yuan. (Bloomberg pic)

BEIJING: China’s central bank said on Sunday it would cut the amount of cash that some banks must hold as reserve to lower financing costs and spur growth in the world’s second-biggest economy.

The reserve cut, the fourth by the People’s Bank of China (PBOC) this year, came after Beijing pledged to expedite plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further, with investment growth slowing to a record low.

Reserve requirement ratios (RRRs) – currently 15.5% for large institutions and 13.5% for smaller banks – would be cut by 100 basis points effective Oct. 15, the PBOC said.

The central bank will pump out a net 750 billion yuan (US$109.2 billion) in cash via the cut, which will release a total 1.2 trillion yuan in liquidity, with 450 billion yuan for offsetting maturing medium-term lending facility (MLF) loans.

The RRR cut would not create depreciation pressure on the yuan, the PBOC said.

The central bank also said it would maintain a prudent and neutral monetary policy and continue to take necessary measures to stablise market expectations.

The central bank would “maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale,” it said.

The stream of new stimulus measures and easier credit conditions have raised fears that Beijing is putting debt reduction efforts on the back burner again.

The country’s state planner also flagged in August that China will use policy tools such as targeted cuts in RRR to support debt-to-equity swaps as Beijing seeks lower corporate debt levels.

While authorities are seen pushing ahead with reducing debt, there have been some signs of softening in their stance.

China’s politburo and state council have recently replaced the use of the term “deleveraging” with “structural deleveraging”, a change that suggests less harsh curbs on debt.

China’s central bank said that it would not resort to strong stimulus to support the slowing economy but would keep liquidity reasonably ample and maintain monetary policy prudently.

The direction of structurally deleveraging would not change but the pace and rhythm of deleveraging would be controlled.

Fears of a full-blown trade war with Washington have magnified concerns about the outlook for China’s economy.

Net exports overall were already a drag on growth in the first half after giving an added boost to the economy last year, highlighting the need for sustained strength in domestic demand if significant new US tariffs are imposed.