China cuts banks' reserve ratio to ratchet up support for 2019

China cuts banks' reserve ratio to ratchet up support for 2019

China cuts banks' reserve ratio to ratchet up support for 2019

PBOC's targeted liquidity support to certain institutions for special goal use - such as providing long-term cheap funds to the China Development Bank to finance subsidised housing - has edged towards bankrolling projects favoured by the government.

The measures will also include targeted RRR cuts aimed at supporting small and private companies, Mr Li was quoted as saying in a statement on the website of the Chinese government.

The People's Bank of China said the reserve requirement ratio will be lowered by 1.0 percentage point, with the stimulus going into effect later this month. China International Capital Corp said that may release as much as 400 billion yuan of liquidity.

China's economic growth appears to be slowing faster-than-expected amid escalating risks of a synchronized global slowdown, with manufacturing activity contracting in December for the first time in more than two years.

It will also reduce the cost of bank interest payments by 20 billion yuan each year and therefore lower the financing costs of the real economy, according to the statement.

Richard Xu, head of China Banking and Fintech Research at Morgan Stanley, said that a further RRR cut is necessary to ensure adequate credit supply.

The cuts will be effective January 15 and January 25, and come ahead of the long Lunar New Year celebrations when cash conditions often get tight.

China's central bank acted to release cash into the economy to support growth, cutting the amount of cash lenders must hold as reserves by 1 percentage point.

But the central bank said growth was still within a reasonable range and it would continue to implement a prudent monetary policy, without engaging in massive stimulus.

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 previous year.

Chinese monetary policy will be targeted to better serve real economic growth and buffer economic downside risks next year, in order to avoid aggressive credit expansion, according to policy advisers.

But analysts see a further deceleration this year, even if a trade deal with the United States is reached. But they note policy transmission difficulties faced by the central bank to boost credit for private and small firms - which are vital for economic growth and jobs.

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