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December 7, 2021

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China cuts RRR again to bolster economic growth

China’s central bank said yesterday it would cut the amount of cash that banks must hold as reserves, its second such move this year, releasing 1.2 trillion yuan (US$188.24 billion) in long-term liquidity to bolster economic growth.

The People’s Bank of China said on its website it would cut the reserve requirement ratio for banks by 50 basis points, effective from December 15.

The cut will not apply to financial institutions with an existing RRR of 5 percent, it said, adding that the weighted average RRR for financial institutions will be at 8.4 percent after the new reduction.

The latest cut is made to keep liquidity reasonably ample and to step up cross cyclical adjustments in a bid to better support the economy, the central bank said.

The RRR for large banks, after taking into consideration the preferential policy of targeted cuts for inclusive financing, is currently at 10.5 percent.

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

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

Some of the funds released will be used to replay matured medium-term lending facility loans, according to PBOC, reaffirming a stance of not resorting to “flood-like” stimulus.

The central bank will guide financial institutions to actively use the released funds to step up support for the real economy, especially small firms, it said.

The RRR cut will reduce the funding cost of financial institutions by about 15 billion yuan per year, which will help lower financing costs of firms, it added.

The cut, the second this year following a broad-based reduction in July, was flagged by Premier Li Keqiang on Friday as a way to step up support for the economy, especially small firms.

The world’s second-largest economy, which staged an impressive rebound from last year’s pandemic slump, has lost momentum in recent months as it grapples with a slowing manufacturing sector, debt problems in the property market and persistent COVID-19 outbreaks.


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