China cuts banks’ reserve requirements in latest effort to boost economy amid US trade war
- People’s Bank of China cuts reserve requirement for all banks by 0.50 percentage point effective from September 16
- It also cuts reserve requirements for certain urban banks by another full percentage point, with half effective on October 15 and the rest a month later
China’s central bank announced on Friday that it will cut the required reserve ratio for all commercial banks, freeing up long-term funding of around 900 billion yuan (US$126 billion) that banks can use to increase lending and support government efforts to shore up the real economy.
The 0.50 percentage point cut in the amount of reserves banks are required to hold at the central bank will be effective from September 16, the People’s Bank of China (PBOC) said.
The required reserve ratio cut would boost bank’s lending capacity and more importantly lower their cost of capital received from the central bank.
The PBOC also cut the reserve requirement by an additional full percentage point for city commercial banks operating in Chinese provinces. The first half will take effect from October 15, with the second taking place a month later, China’s central bank added.
E Yongjian, a senior researcher at the Bank of Communications, said the strong policy action reflects current economic difficulties and rising external uncertainties.