China Signals Reserve Ratio Cuts Coming Soon For Virus Fight
China’s cabinet called for a further reduction in the amount of cash some lenders have to park at the central bank.
(Bloomberg) -- China’s cabinet called for a further reduction in the amount of cash some lenders are required to park at the central bank, as the government seeks to ease monetary conditions to support the economy amid the impact of the coronavirus.
The State Council meeting chaired by Premier Li Keqiang called for reserve requirement ratio cuts “soon” for banks participating in a program to secure funding for small and medium-sized companies, according to a statement released by the government. Additional cuts in the reserve ratios for joint-stock banks were also pledged at the meeting.
Both measures are aimed at supplying long-term cheap funding to banks to encourage them to lower the financing costs of enterprises, especially for smaller companies hit by the coronavirus. Usually such calls from the State Council herald action from the People’s Bank of China within a few days.
“We expect the PBOC to rotate between cuts to the reserve requirement ratio and medium-term lending rate in near-term,” Ding Shuang, chief Greater China and North Asia economist at Standard Chartered Plc in Hong Kong, wrote in a note. “With the upcoming targeted reserve-ratio cut in March, the PBOC may choose to cut the medium-term lending rate in April.”
The upcoming RRR cuts will release at least 300 billion yuan ($43.1 billion) into the banking system, he said, while the window for a benchmark deposit rate cut will only open in the second quarter.
While the pledge to cut reserve ratios for banks with sufficient lending to small firms has been well telegraphed by policy makers, the additional reduction for joint-stock banks is unexpected.
It indicates increased efforts to help small and medium-sized banks, as their clients are mainly small companies and the quality of these banks’ assets has deteriorated since the virus outbreak, according to Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing.
Other measures pledged at the meeting:
- Li also called for a shortening of the so-called “negative list” that marks areas foreign companies are forbidden from entering
- China will actively prepare for the Canton Fair, slated to open this spring
- Strengthening international cooperation to facilitate the smooth operation of global supply chains, including adding international cargo flights
- Encouraging financial institutions to provide more credit to export-oriented companies
To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net;Ocean Hou in Beijing at jhou88@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net
To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, James Mayger
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With assistance from Bloomberg