BEIJING- China’s central bank said on Monday it would cut the amount of cash that banks must hold in reserve, its second such move this year, releasing 1.2 trillion yuan ($188 billion) in long-term liquidity to bolster slowing economic growth.
The People’s Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for banks by 50 basis points (bps), effective from Dec. 15.
The world’s second-largest economy, which staged an impressive rebound from last year’s pandemic slump, has lost momentum in recent months as it grapples with a slowing manufacturing sector, debt problems in the property market and persistent COVID-19 outbreaks.
Some analysts believe growth could slow further in the fourth quarter from the third quarter’s 4.9 percent, although the full-year growth could still be around 8 percent.
“The RRR reduction will help alleviate the downward pressure on the economy and smooth the economic growth curve,” said Wen Bin, a senior economist at Minsheng Bank.
“Although there is little pressure to achieve this year’s economic growth target, economic work will face big pressures and challenges next year.”
The government has set a relatively modest annual economic growth target, at above 6 percent, for this year, coming off the pandemic-stricken 2020.
The cut, the second this year following a similar broad-based reduction in July, was flagged by Premier Li Keqiang on Friday as a way to step up support for the economy, especially small firms.
The cut will not apply to financial institutions with existing RRR of 5 percent, it said, adding that the weighted average RRR for financial institutions will be at 8.4 percent after the new reduction.
The RRR for large banks, after taking into consideration the preferential policy of targeted cuts for inclusive financing, is currently at 10.5 percent.
Some of the funds released will be used to repay matured medium-term lending facility loans, according to PBOC, reaffirming a stance of not resorting to “flood-like” stimulus.
The central bank will guide financial institutions to actively use the released funds to step up support for the real economy, especially small firms, it said.
The RRR cut will reduce the funding cost of financial institutions by about 15 billion yuan per year, which will help lower financing costs of firms, it added.
Advisers to China’s government will recommend authorities set a 2022 economic growth target below the one for 2021, giving policymakers more room to push structural reforms.
President Xi Jinping said the economic situation at home and abroad remains complex, adding that China will maintain overall social stability for the 20th Party Congress next year, the official Xinhua news agency said.
