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China launches targeted RRR cuts to bolster liquidity
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THE People’s Bank of China cut reserve ratios for big banks temporarily amid liquidity tightness, the central bank said today.
The PBOC has cut the reserve requirement ratio (RRR) for those big lenders by one percentage point, taking the ratio down to 16 percent in order to “guarantee the cash needs before holidays, promote the liquidity of interbank market and maintain a stable money market.”
The period of a lower RRR ratio, which refers to the amount of cash that banks must hold as reserves, will sustain for 28 days in each bank and will be adjust back to normal level later after in an appropriate time, PBOC said in a statement released Friday afternoon.
Caixin earlier reported that the move was posed on country’s five biggest lenders, which refers to Industrial and Commercial Bank of China Ltd (ICBC), China Construction Bank Corp (CCB), Bank of China, Bank of Communications Co (BoCom) and Agricultural Bank of China.
China International Capital Corp estimate that the move could effectively injects more than 600 billion yuan (US$87.3 billion) worth of long-term cash into the economy to fill in the needs on cash withdrawal, tax payment and reserve payment before the week-long Chinese Lunar New Year holiday starts next Thursday.
It is the first time PBOC lowers the RRR level to targeted banks in a fixed period of time and its first reduction in RRR since February, 2016. Short-term funding costs had spiked to their highest levels in nearly 10 years earlier this week on fears that liquidity was sharply tightening, sparking a jump in the yuan currency.
“The temporarily move could ease the pressing needs for cash,” CITIC Securities Co said in a comment released after the media report. “But in a long term, other tools like expanding the scope of other liquidity fulfillments are still needed.”
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