China to cut reserve requirement ratio for second time this year to boost economic growth amid strong headwinds

PBOC decision comes only three days after Premier Li Keqiang said China would cut the RRR ‘at an appropriate time’

Move comes amid signs that China’s economic growth is slowing, while a downturn in the property market appears imminent

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The People’s Bank of China will cut the reserve requirement ratio for the second time this year. Photo: Bloomberg

Published: 5:45pm, 6 Dec 2021Updated: 9:16pm, 6 Dec 2021

China’s central bank has announced its second reserve ratio cut this year to shore up the economy, as the nation’s leaders prioritise stability ahead of a key political meeting next year.

The People’s Bank of China said on Monday that it will cut the reserve requirement ratio (RRR) for major commercial banks by 0.5 percentage points, releasing 1.2 trillion yuan (US$188 billion) worth of long-term liquidity into the interbank system on December 15 with an aim of supporting the Chinese economy in the face of growing headwinds.

The move comes amid signs that China’s economic growth is slowing, while a downturn in the property market is imminent as developer Evergrande Group’s debt restructuring could also trigger a tightening of the credit market.

Ensuring economic and social stability has moved to the top of Beijing’s agenda in the lead-up to next year’s political gathering that will usher in a leadership reshuffle, and the central government has been signalling more policy easing.

In a statement issued after its meeting on Monday, the Communist Party’s 25-member Politburo, China’s primary decision-making body chaired by President Xi Jinping, said the country will “put the word of stability as the top priority” in its economic decision-making for 2022.

The statement also removed some optimistic wording that followed an economy-focused meeting in July, when the Politburo said “the economy continues to recover steadily, with a stable performance and good momentum for growth”. The omission came as Beijing has recently been sounding the alarm on “new downward pressure” on China’s economy.

“[We should] continue to improve people’s livelihood, strive to stabilise the macroeconomy, keep the economy running within a reasonable range, maintain overall social stability, and welcome the successful convening of the 20th CPC National Congress,” Monday’s statement said, according to the Xinhua News Agency.

The upcoming RRR cut by the People’s Bank of China (PBOC) will allow most banks to maintain a reduced average ratio of 8.4 per cent, while small banks that now have a lower reserve ratio of 5 per cent will be excluded.