China's central bank makes move to ease fears of stock sell-off
Central bank's action to cut level of cash banks must hold could stabilise markets spooked by regulatory clampdown on margin trading
The central bank has cut the level of cash that banks must hold, in the second such action this year that highlights the leadership's concerns after the first quarter saw the slowest economic growth since 2009.
The 1.0 percentage point reduction in the reserve requirement ratio to 18.5 per cent, announced by the People's Bank of China yesterday, follows a 0.5 percentage point cut on February 4 and two cuts to official interest rates since November last year. The move may free up an estimated 1.2 trillion yuan (HK$1.5 trillion), boost financial markets and reverse earlier predictions of a broad sell-off today.
Markets had been bracing for a steep drop following a mainland regulatory announcement on Friday night that authorities would clamp down on high-risk margin trading and widen the scope for short selling.
By cutting the reserve requirement ratio, banks will be able to pump more money into the economy and help offset recent capital outflows.
In a statement on its website, the PBOC said the cut would "further enhance the ability of financial institutions to support restructuring".
In global share markets, falls for Chinese firms listed on US and European bourses were followed by sharp drops in the futures market. The FTSE China A50 Index futures for April dropped more than 6 per cent, while contracts on the H-share index lost 3.3 per cent.
Margin account balances on the mainland hit 1.15 trillion yuan on Friday, more than triple the 263 billion yuan at the end of June, when the Shanghai Composite Index plumbed new lows.