China Central Bank Cuts RRR By 25 Bps To Support Economic Recovery
2023年3月17日 - 06:18PM
The People's Bank of China cut the reserve requirement ratio for
banks by 25 basis points on Friday for the first time this year to
support the nascent economic recovery and to ensure reasonable and
sufficient liquidity in the banking system.
The RRR represents the amount of cash that banks must hold as
reserves. The latest reduction in the ratio is applicable to all
banks except those that have already implemented a 5 percent
reserve ratio, the central bank said in a statement. The new ratio
is effective March 27. The average deposit reserve ratio of
financial institutions after the latest cut is about 7.6 percent.
The previous change in the RRR was a quarter-point cut for all
banks in December. The reduction was the fifth in this policy
cycle. The PBoC said the latest reduction would help to maintain
appropriate money supply and credit at a stable pace that would to
match the nominal economic growth rate.
The central bank also said it will avoid "flood irrigation", a
phrase that Chinese policymakers use to imply the process of
flooding the system with excessive money supply.
In February, the PBoC retained its one-year loan prime rate at
3.65 percent and the five-year LPR, the benchmark for mortgage
rates, was kept unchanged at 4.30 percent.
Economists said the latest cut in the RRR is unlikely to have
any significant impact on the economy and liquidity conditions.
The latest reduction would provide some financial relief for
China's large and medium-sized banks and may also help to ease
borrowing costs slightly, Capital Economics economist Julian
Evans-Pritchard said. The economist pointed out that the PBoC had
guided banks to pass on much of the windfall from RRR cuts to
borrowers through lower lending rates when it announced reductions
in the past.
The absence of such window guidance this time implies that one
motivation for the latest RRR cut is to take some pressure off of
the banks, whose profitability has taken hit from the property
downturn and wider economic weakness, Evans-Pritchard added.
Lower borrowing costs due to the latest reduction are likely to
benefit real estate developers and local government bodies, ING
economist Iris Pang said.
Another reason for the move may be to provide a cushion against
any potential negative spillover from the recent global market
turmoil due to the banking crisis in the US and Europe. "If foreign
investors need cash and there are sudden capital outflows from
China, there is at least some immediate cushion," Pang
"Surely in such an event, the PBoC would inject more
liquidity into the market."
The Chinese government has set a moderate growth target of
around 5 percent for this year which would require no strong
stimulus to achieve given the rebound the economy gained
from the relaxation of the Covid pandemic restrictions.
Beijing had missed its growth target of 'around 5.5 percent'
last year by a wide margin as the economy was strictly under
pandemic related restrictions.
The second largest economy in the world grew only 3.0
percent in 2022 to mark the weakest expansion in decades.
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