People’s Bank of China allows commercial banks to hold less capital in reserve

This article is more than 8 months old

This article is more than 8 months old

China’s central bank has acted to pump more liquidity into the country’s economy in an attempt to prevent growth slowing in 2020.

The People’s Bank of China is allowing commercial banks to hold less capital in reserve, freeing up about 800bn yuan (£87bn) in new funds for loans. It will cut China’s banks’ reserve requirement ratio (RRR) by 50 basis points, to 12.5%, from 6 January.

The move means lenders can lend more of their savers’ funds to borrowers to support the economy, rather than keeping it on hand.

The RRR was cut three times during 2019 as Beijing tried to protect companies from the damage caused by the US-China trade war. Despite these efforts, growth hit a 30-year low in 2019, with manufacturing activity shrinking for much of the year.

The PBoC said this latest cut was meant to “further support the development of the real economy and lower real financing costs”.

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The lower RRR could also prevent financial conditions tightening in the run-up to the lunar new year this month, when firms and families need cash on hand.

In a new year message, the PBoC governor, Yi Gang, said the central bank had taken “resolute and strong actions” in 2019, to combat predictable and unpredictable events.

“Facing potential [unpredictable and high-impact] ‘black swan’ and [highly probable] ‘grey rhino’ incidents in the financial market, we had the resolution, confidence and ability to win the battle of forestalling and defusing major financial risks,” Yi declared.