China to cut bank reserve requirement ratio

China cuts banks' reserve ratio to support growth

The cut comes amid mounting worries about the health of the world's second-largest economy, which is facing both slowing demand at home and punishing US tariffs on its exports. The PBoC said on Wednesday that it chose to relax evaluation rules for financial institutions eligible for a lower reserve requirement ratio (RRR) from 2019, in a move to boost lending to small and micro enterprises (SMES).

The PBOC had cut reserve requirement ratios for some banks four times in 2018, and recently introduced a targeted version of its Medium-Term Lending Facility to supply lower-cost funding to banks, a move analysts see as a toned-down version of rate cut. The size of the move was in the upper end of market expectations, Reuters said.

"Given the pressures the economy is facing though, it could still be months before growth stabilizes", noted the analysts at Capital Economics.

Consumption will remain the main driver of China's economy, as weaker credit growth weighs on investment and slowing global demand and higher United States duties on Chinese good take a toll on the country's exports, the report said.

It will reduce the required reserve ratio (RRR) by 0.5 of a percentage point on January 15 and again on January 25 so that banks have sufficient funds to lend, especially to private firms and small businesses. It is the first cut since October last year and the fifth in a year.

China reported on Monday that factory activity shrank in December for the first time in over two years.

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The measures will also include targeted RRR cuts aimed at supporting small and private companies, Mr Li was quoted as saying in a statement on the website of the Chinese government.

Chinese financial stocks surged Friday as Premier Li Keqiang visited the nation's biggest banks and pledged more support for the economy.

"Monetary policy will remain stable, without too much easing of credit", said Sheng Songcheng, a central bank adviser and a former director of the statistics department of the People's Bank of China (PBOC).

The central bank said on Friday, after a work meeting, that it would keep liquidity reasonably ample, and market interest rates steady. The government has also ramped up spending on infrastructure to rekindle sluggish demand and investment.

In December 2018, World Bank said China's economic growth is likely to slow to 6.2% in 2019 from an expected 6.5 percent this year.

A further deceleration is seen this year, with some analysts forecasting growth will cool to almost 6 percent, which would mark China's weakest expansion since 1990.

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