PBOC announcement to help keep economic growth stable

The headquarters of the People’s Bank of China in Beijing. (Photo/Chinese Information Service)

China’s central bank on Friday announced a reduction in the amount of cash banks must hold as reserves, which is expected to free up 530 billion yuan ($82.95 billion) of long-term liquidity, as part of efforts country to support the development of the real economy and reduce overall financing costs.

The reserve requirement ratio (RRR) will be cut by 0.25 percentage points, effective April 25, except for financial institutions that have already implemented a 5% RRR, the People’s Bank of China said in a statement. communicated.

The decision was widely expected, aiming to tackle this year’s challenges beyond expectations, Zhao Xijun, a finance professor at Renmin University of China in Beijing, told the Global Times.

Zhao further explained that further challenges were brought by the triple pressure of falling demand, disrupted supply and weakening expectations. At the same time, challenges related to the external environment, especially geopolitical pressure, also exceeded expectations last year.

In addition, other factors, including the new round of tightening by the U.S. Federal Reserve and the pandemic, have made those challenges more severe this year, Zhao noted.

After the RRR cut in July and December last year, this year’s cut sent a clear signal of continued financial efforts to support stable economic growth, said Wen Bin, chief analyst at China Minsheng. Bank, the Beijing Daily reported.

Wen added that the long-term funds freed up by the reduction of the RRR will not only help reduce the capital cost of financial institutions, reduce the financing costs of the real economy and make countercyclical adjustments, but also allow banks and other institutions to align themselves with public finances. because they will have sufficient funds to buy treasury bills and special local government bonds.

The reduction will reduce funding costs for financial institutions by about 6.5 billion yuan a year, the PBOC said.

The Beijing Daily quoted Wang Qing, chief macroeconomics researcher at Golden Credit Rating, as saying that the RRR reduction will have three effects: first, it will directly improve banks’ lending ability and help ease credit; second, when capital costs for banks are reduced and the prime lending rate is reduced, business and household lending interest rates will follow; and finally, it sends policy signals that alongside targeted support policies for technological innovation and inclusive retirement lending, other monetary policies are also taking shape.

The PBOC reaffirmed its stance on implementing prudent monetary policy, avoiding “flood-like” stimulus measures and making better use of monetary policy tools to adjust both the monetary aggregate and the structure. monetary.

Still, Wang said the reduction in the RRR cannot rule out the possibility of lowering interest rates. Given the current downward trend in the housing sector and the resurgence of the pandemic, lower interest rates can better reverse expectations about the housing market and directly reduce the financing costs of the real economy.

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