China cuts banks' reserve ratios by 1% as economy slows

Ivan Schwartz
January 7, 2019

After four RRR cuts so far this year, the ratio for large banks dropped to 14.5pc in October, the lowest level since 2008.

"It is hard to clearly understand the overall policy effect as every institution has to make their own calculations", said Ding Shuang, chief Greater China economist at Standard Chartered Bank. The size of the move was in the upper end of market expectations, Reuters said.

"With credit growth still slowing and, typically, a six-month lag before any turnaround in credit affects the economy, worries about the outlook for China will persist for several months yet".

The cuts will be effective January 15 and January 25, and come ahead of the long Lunar New Year celebrations when cash conditions often get tight.

China made its first major monetary policy easing announcement of 2019 on Friday as Beijing prepared to roll up its up sleeves to battle a year that is expected to be filled with economic hardship as well as numerous other challenges at home and overseas, Trend reports referring to South China Morning Post.

Lian Ping, chief economist at the Bank of Communications, said the pressure of the economic slowdown would show up in the first half of 2019 when the existing USA tariffs on US$250 billion of Chinese goods would bite deeper into the economy.

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Small and micro-sized companies with a credit line of less than 10 million yuan (US$1.46 million) will be able to take advantage of reserve-requirement ratio cuts, compared to the previous standard of 5 million yuan, said the PBOC in a statement.

The central bank said it believes the latest move could "guide" banks to lend more to small and tiny businesses.

The central bank said on Friday, after a work meeting, that it would keep liquidity reasonably ample, and market interest rates steady.

But analysts see a further deceleration this year, with growth cooling to the low 6-percent range even if a trade deal with the United States is reached. The government has also ramped up spending on infrastructure to rekindle sluggish demand and investment.

"The central bank will continuously implement prudent monetary policy 'neither too tight nor too loose, ' and refrain from using a deluge of stimulus and focus on targeted adjustment to maintain sound and sufficient liquidity, facilitate rational growth in monetary credit and social financing and stabilize macro leverage ratio to create a proper monetary and financial environment for the country to pursue high-quality economic development and advance supply-side structural reform".

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