China releases $ 188 billion for banks in second reduced reserve rate this year

FILE PHOTO: A man wearing a mask walks past the headquarters of the People’s Bank of China, the central bank, in Beijing, China February 3, 2020. REUTERS / Jason Lee / File Photo / File Photo

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  • C.bank reduces RRR by 50bp, frees up 1.2 billion yuan in funds
  • Said some funds will be used to repay maturing MLF loans
  • Increase support for small businesses, reduce financing costs
  • Economy faces increasing headwinds due to housing slowdown, COVID

BEIJING, Dec. 6 (Reuters) – China’s central bank on Monday announced it would reduce the amount of liquidity banks must hold in reserve, its second such move this year, freeing up 1.2 trillion yuan (188 billion dollars) of long-term liquidity to reinforce slowing economic growth.

The People’s Bank of China (PBOC) announced on its website that it would reduce the reserve requirement ratio (RRR) of banks by 50 basis points (bps), effective December 15.

The world’s second-largest economy, which experienced an impressive rebound from last year’s pandemic crisis, has lost momentum in recent months as it grapples with a manufacturing slowdown, debt problems on the market. real estate market and persistent outbreaks of COVID-19.

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Some analysts believe growth may slow further in the fourth quarter from 4.9% in the third quarter, although full-year growth may still be around 8%.

“Reducing the RRR will help ease downward pressure on the economy and smooth the economic growth curve,” said Wen Bin, senior economist at Minsheng Bank.

“Although there is little pressure to achieve this year’s economic growth target, economic work will face great pressures and challenges next year.”

The government has set a relatively modest annual economic growth target, above 6%, for this year, emerging from the 2020 pandemic.

The reduction, the second this year after a similar general reduction in July, was signaled by Premier Li Keqiang on Friday as a way to step up support for the economy, especially small businesses. Read more

The reduction will not apply to financial institutions with an existing RRR of 5%, he said, adding that the weighted average RRR for financial institutions will be 8.4% after the further reduction.

The RRR of the big banks, after taking into account the preferential policy of targeted cuts in inclusive financing, is currently 10.5%.

Part of the funds released will be used to repay matured medium-term loans, according to the PBOC, reaffirming its position not to resort to “flood-like” stimulus measures.

The central bank will encourage financial institutions to actively use the freed funds to strengthen their support for the real economy, especially small businesses, he said.

The reduction in RRR will reduce the cost of financing financial institutions by about 15 billion yuan per year, which will help reduce the cost of financing companies, he added.

REAL ESTATE POLICY IN THE SPOTLIGHT

Chinese government advisers will recommend that authorities set an economic growth target for 2022 lower than that of 2021, giving policymakers more leeway to push structural reforms. Read more .

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 state-run Xinhua news agency said. .

China will deepen its reforms and openness, and promote better development, Xi said.

China’s Politburo, the ruling Communist Party’s supreme decision-making body, said on Monday that it would keep economic operations within a reasonable range in 2022 and promote the healthy development of the real estate industry, Xinhua said.

“The key question on the minds of investors is whether the government is ready to change the political position in the real estate sector, to what extent will it be changed and if a change in position can really help turn the sector around. “said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management.

China’s decision to steer developers away from rampant borrowing has resulted in loan losses for banks and difficulties in credit markets. It also exacerbated a liquidity squeeze at developer China Evergrande (3333.HK) and other real estate companies. Read more

Authorities said on Friday they would step in and oversee the company’s risk management. Read more

Authorities recently made changes to financing to help homebuyers and expanded fundraising channels for some developers.

The latest RRR cut will help ease liquidity conditions and prevent potential financial risks as some large real estate developers face payment default risks, said Tang Jianwei, senior economist at the Bank of Communications.

The new variant of the Omicron coronavirus also added uncertainty, as Beijing’s zero COVID approach to eradicating local cases has hit many small businesses.

($ 1 = 6.3749 yuan Chinese renminbi)

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Beijing newsroom report; Editing by Sam Holmes, Ed Osmond, Carmel Crimmins and Louise Heavens

Our standards: Thomson Reuters Trust Principles.


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