China slashes banks' reserve requirements again as growth slows

China cuts bank reserve requirement to spur economy amid trade war

China cuts bank reserve requirement to spur economy amid trade war

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.

China will likely cut reserve requirement ratios (RRR) again this month and improve credit conditions ahead of the annual Lunar New Year in China which will result in a tightening of liquidity.

The policy move was announced hours after Chinese Premier Li Keqiang told the central bank to make universal cuts of the ratio as part of Beijing's efforts to bolster economic growth having cut the RRR four times previous year.

China's central bank has announced more monetary easing in the form of cutting the minimum reserve level for commercial banks by a total of one percentage point. The size of the move was in the upper end of market expectations, Reuters said.

RRRs - now 14.5 percent for large institutions and 12.5 percent for smaller banks - will be lowered by a total of 100 basis points in two stages, the PBOC said. It is the first cut since October last year and the fifth in a year.

Today's cut is still "targeted" easing rather than wide-ranging stimulus, the PBOC said, adding that its "prudent monetary policy stance hasn't changed". Early indicators for December signal the economic slowdown is deepening, after official data showed industrial production growth was the weakest in a decade and industrial profits fell for the first time in nearly three years in November.

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"We will maintain reasonable and sufficient liquidity, maintain reasonable growth in the scale of money and credit and social financing, stabilise macro-leverage and seek internal and external balances", it said.

A State Council executive meeting held on Christmas Eve called for strengthening support for small and medium-sized enterprises, as well as private businesses.

The central bank said it believes the latest move could "guide" banks to lend more to small and tiny businesses.

Together, the new measures should inject about 800 billion yuan ($116 billion) into the world's second largest economy as growth slows and a trade war with the United States takes its toll.

Economists believe the government could take more fiscal steps by cutting taxes and boosting spending on infrastructure, amid expectations that the budget deficit ratio could be lifted to 3 percent in 2019 from 2.6 percent past year.

The effectiveness of a move by China's central bank to inject up to an expected 700 billion yuan into the world's second largest but worryingly slowing economy is hard to calculate given the lack of transparency in the monetary policy, warned a chief economist.

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