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China to cut reserve requirement as economy slows

China's central bank announced Wednesday it was cutting the reserve requirements for banks, freeing up about $114 billion to boost lending and spur the slowing economy.

👤 H K Badal1 Jan 2020 4:45 PM GMT
China to cut reserve requirement as economy slows
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Beijing, AFP

China's central bank announced Wednesday it was cutting the reserve requirements for banks, freeing up about $114 billion to boost lending and spur the slowing economy.

The People's Bank of China will cut the reserve requirement ratio (RRR) on 6 January by 50 basis points, it said in a statement, reducing the amount of cash banks must hold.

Lowering the ratio frees up more money for banks to lend to small businesses.

The central bank cut the requirement three times in 2019 to bolster the Chinese economy, which grew at the slowest rate in three decades last year.

State news agency Xinhua said the latest cut will "offset the impacts of cash demand" ahead of the Spring Festival in late January.

Nomura investment bank chief China economist Ting Lu said in a note that the move reflected Beijing's concerns over tightening credit and other pressures on the economy, but was likely to have only a limited impact.

"We believe the economy has yet to hit the bottom given strong growth headwinds. The market may turn much more optimistic about China's growth prospects, similar to early 2019, but we recommend caution on the economic impact of the RRR cut," he wrote.

Cooling domestic demand and a bruising trade war with the United States have contributed to the economic slowdown.

Washington and Beijing last month announced a "Phase One" trade deal, de-escalating their nearly two-year trade war as President Donald Trump reduced or cancelled some tariffs while Beijing promised to adopt trade reforms and buy more US farm exports.

The partial trade agreement will be signed in the middle of January, Trump said Tuesday, announcing that he will also travel to China for continued talks.