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Bloomberg
China’s central bank cut the amount of cash lenders must hold as reserves for the fourth time this year, as policy makers seek to shore up the economy amid a worsening trade war.
The People’s Bank of China lowered the required reserve ratio for some lenders by 1 percentage point, effective from October 15, according to a statement on its website. The cut will release a total of 1.2 trillion yuan ($175 billion), of which 450 billion yuan is to be used to repay existing medium-term funding facilities which are maturing, the central bank said.
Reacting to a cyclical slowdown that’s been worsened by Beijing’s anti-debt campaign and the building trade conflict with the US, the central bank has maintained an accommodative monetary policy even as the currency slumped. The effects of that policy support plus tax cuts and increased infrastructure funding have yet to fully filter through though, and economic momentum continued to lose pace in September.
“China’s monetary policy is still prioritising domestic economic problems, despite the escalating trade war and Federal Reserve tightening,†said Ming Ming, head of fixed income research at Citic Securities Co.
in Beijing. “The reduction will help ease domestic financing difficulties,†he said.
The PBOC will continue to adopt a prudent, neutral monetary policy and this reserve ratio cut won’t lead to yuan depreciation pressures, the central bank said in the statement. The cut will apply to large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks,
according to the statement.
The increased liquidity will help support bank lending and credit in general, and unlike that from the PBOC’s medium-term funding tools, it is permanent, which can help banks’ liquidity expectations, according to Wang Tao at UBS Group AG. The cut gives the market a stronger easing signal and can support sentiment, which has been negative on China and emerging markets in the past few days, she said. Two gauges of activity in China’s manufacturing sector worsened in September, with the official reading for new export orders falling to the lowest reading since 2016.