PBoC cuts banks’ reserve requirements
(6 September 2019 – China) China’s central bank has announced that it will cut the required reserve ratio for all commercial banks, freeing up long-term funding for around US$126 billion that banks can use to increase lending and support government efforts to shore up the real economy.
The 0.50 percentage point cut in the amount of reserves banks are required to hold at the central bank will be effective from September 16, the People’s Bank of China (PBOC) said.
The required reserve ratio cut would boost bank’s lending capacity and more importantly lower their cost of capital received from the central bank.
The PBOC also cut the reserve requirement by an additional full percentage point for city commercial banks operating in Chinese provinces. The first half will take effect from October 15, with the second taking place a month later, China’s central bank added.
The latest cut in banks’ reserve requirement was the third this year. After the cuts, the required reserve ratio will be 13 percent for large banks, and 11 percent for medium and small-sized banks. The rate will be even lower at 10 percent and 7.5 percent, respectively, for city commercial banks and county-level banks.
The moves came after the government announced earlier this week its intention to increase economic stimulus measures, as the world’s second largest economy faces increasing downward pressure amid the escalating trade war with the United States.
The market is expecting the PBOC to cut the interest rate on its medium-term lending facility, which provides funding to the interbank market, later this month, which would further reduce lending costs.