China slashes banks' reserve requirements again as economy slows

Latest support measures come amid mounting worries about health of the world's second-largest economy

Reuters January 04, 2019
Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018. REUTERS/Jason Lee

BEIJING: China's central bank said on Friday it was cutting the amount of cash that banks must hold as reserves for the fifth time in the past year - freeing up $116 billion for new lending as it tries to reduce the risk of a sharper economic slowdown.

The latest support measures come 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 exported goods.

Global stock markets sold off on Thursday after a warning from tech giant Apple Inc about slowing China sales, while data earlier this week showed the country's manufacturing activity shrank in December for the first time in over two years.

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The cut in banks' reserve requirement ratios (RRR) is the first in 2019 by the People's Bank of China (PBOC) as the economy faces its weakest growth since the global financial crisis and mounting pressure from US tariffs.

The moves will free up a net 800 billion yuan ($116.51 billion) after banks use some of the 1.5 trillion yuan in liquidity released into the financial system to pay back maturing medium-term loans. "Policy easing will be stepped up further over coming months," Capital Economics said in a research note.

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"With credit growth still slowing and, typically, a six-month lag before any turnaround in credit affects the economy, worries about the outlook for China will persist for several months yet."

More help coming

Further cuts in the RRR had been widely expected this year, especially after a spate of weak data in recent months showed China's economy was continuing to lose steam. The size of the move was on the upper end of market expectations, and the net funds released would be the largest amount in the five cuts since last January.


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