China cuts banks’ reserve ratio to boost economic growth in 2020

BEIJING: China’s central bank said it will cut the amount of cash banks must hold as reserves, a move aimed at putting a floor under economic growth in 2020.

The required reserve ratio for commercial lenders will be lowered by 50 basis points from Jan 6, the People’s Bank of China said on its website Wednesday.

The cut aims to offer a stable funding supply to financial institutions, and it will release US$115 billion of liquidity, it said in a separate statement.

The move was signaled by Chinese premier Li Keqiang in December 2019.

It’s also in line with market expectations that the PBOC will increase funding to the financial system before the Lunar New Year to ease a possible liquidity crunch caused by rising local government debt sales and increasing cash demand during the Spring Festival holidays.

China’s manufacturing sector continued to expand output in December, adding to evidence that the world’s second-largest economy is stabilising as the signing of a phase one trade deal with the US nears.

Still, a firm recovery of the overall economy is not yet consensus, particularly as small and private companies struggle to find cheap funding.

The cuts announced Wednesday will likely lead to further decline in loan prime rate — the benchmark rate for new corporate loans — as banks reduce their quoted prices when the rate is composed in late January.