China cuts reserve requirements for banks as economy slows


The PBOC cut by 25 basis points to release about $83.25 billion in long-term liquidity

The PBOC cut by 25 basis points to release about $83.25 billion in long-term liquidity

China said on Friday it would cut the amount of cash banks are required to hold as reserves for the first time this year and release about 530 billion yuan ($83.25 billion) in long-term liquidity to prevent a sharp slowdown in economic growth to support.

Heightened global risks from the war in Ukraine, widespread COVID-19 lockdowns and a sluggish real estate market are causing shocks in the world’s second largest economy that are quickly spilling over into global supply chains.

China’s exports, the last major engine of growth, are also showing signs of slowing, and some economists say the risks of a recession are rising.

The People’s Bank of China (PBOC) said on its website that it would cut the reserve requirement ratio (RRR) for all banks by 25 basis points (bps) effective April 25.

The central bank said it will cut the RRR by another 25 basis points for some smaller rural and urban commercial banks.

An impending RRR cut was widely expected after the country’s cabinet said on Wednesday that monetary policy tools should be used in a timely manner to boost growth.

The RRR correction, which followed a broad-based reduction in December, marks the latest move by Chinese policymakers to cushion a sharp slowdown. The central bank has also started cutting interest rates, while local governments have accelerated infrastructure spending and the Treasury has pledged more tax cuts.

However, some market observers say Beijing’s room to cut interest rates is limited.

With other major central banks, such as the US Federal Reserve, aggressively raising interest rates or already doing so, more vigorous easing in China could spur potentially destabilizing capital outflows as investors move money into higher-yielding assets.

On Friday, the PBOC left the cost of borrowing for medium-term policy loans unchanged for a third straight month, as expected.

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