Published: Mon, January 07, 2019
Money | By Ralph Mccoy

China slashes banks' reserve requirements again as growth slows

China slashes banks' reserve requirements again as growth slows

The People's Bank of China (PBOC), China's central bank, will cut the amount of money banks are required to hold in reserve with it by one percentage point, a move that could pump 1.5 trillion yuan (US$210 billion) of additional liquidity into the banking system to help arrest a deepening economic slowdown.

China slashed reserve requirements four times in 2018 to free up more funds for banks to lend and analysts expect three to four more cuts this year starting in the current quarter.

The announcement came just hours after Premier Li Keqiang said China would take further action to bolster the economy, including RRR cuts and more cuts in taxes and fees.

Tax cuts could be a better way to improve corporations' profitability and boost investments at this time, which is "key to avoiding irrational credit expansion and reducing the risk of further credit tightening in the future", said Mr Xu.

Global stock markets sold off on Thursday after a warning from tech giant Apple Inc about slowing China sales, while data earlier this week showed the country's manufacturing activity shrank in December for the first time in over two years.

"This speedy RRR cut with great intensity fully demonstrates the determination of policymakers to stabilise growth", said Yang Hao, an analyst at Nanjing Securities.

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The reductions will be made in two stages on January 15 and January 25.

"The Chinese economy continues healthy development and stays within a reasonable range", it said.

In addition, the PBoC pledged to keep the yuan exchange rate basically stable at a reasonable and equilibrium level with use of a variety of monetary policy tools, according to its Q4 monetary policy statement released on 27 December.

Louis Kuijs, chief Asia economist of Oxford Economics, wrote in a note on Friday that China's GDP growth this year could slow to 6.1 per cent from an estimated 6.6 per cent in 2018, and Beijing would rely on policy easing to halt a decline in the growth rate.

The USD/CNH currency pair is expected to trade towards 6.60-6.70 as the US and China are increasingly likely to reach a trade deal by the March 1 deadline, according to the latest research report from Scotiabank.

The twisted and conditional liquidity support is part of the central bank's controversial plan to implement "targeted easing" which is aimed at ensuring funds will end up in hands of the right borrowers such as small factory owners.

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