China releases $ 188 billion for banks in second reduced reserve rate this year

BEIJING, Dec. 6 (Reuters) – China’s central bank on Monday announced it would reduce the amount of liquidity banks must hold in reserve, its second such move this year, freeing up 1.2 trillion yuan (188 billion dollars) of long-term liquidity to reinforce slowing economic growth.

The People’s Bank of China (PBOC) announced on its website that it would reduce the reserve requirement ratio (RRR) of banks by 50 basis points (bps), effective December 15.

The world’s second-largest economy, which experienced an impressive rebound from last year’s pandemic crisis, has lost momentum in recent months as it grapples with a manufacturing slowdown, debt problems on the market. real estate market and persistent outbreaks of COVID-19.

Some analysts believe growth may slow further in the fourth quarter from 4.9% in the third quarter, although full-year growth may still be around 8%.

“Reducing the RRR will help ease downward pressure on the economy and smooth the economic growth curve,” said Wen Bin, senior economist at Minsheng Bank.

“Although there is little pressure to achieve this year’s economic growth target, economic work will face great pressures and challenges next year.”

The government has set a relatively modest annual economic growth target, above 6%, for this year, emerging from the 2020 pandemic.

The reduction, the second this year after a widespread reduction in July, was signaled by Premier Li Keqiang on Friday as a way to boost support for the economy, especially small businesses. Read more

The reduction will not apply to financial institutions with an existing RRR of 5%, he said, adding that the weighted average RRR for financial institutions will be 8.4% after the further reduction.

The RRR of the big banks, after taking into account the preferential policy of targeted cuts in inclusive financing, is currently 10.5%.

Part of the funds released will be used to repay matured medium-term loans, according to the PBOC, reaffirming its position not to resort to “flood-like” stimulus measures.

The central bank will encourage financial institutions to actively use the freed funds to strengthen their support for the real economy, especially small businesses, he said.

The reduction in RRR will reduce the cost of financing financial institutions by about 15 billion yuan per year, which will help reduce the cost of financing companies, he added.

REAL ESTATE POLICY IN THE SPOTLIGHT

Chinese government advisers will recommend that authorities set an economic growth target for 2022 lower than that of 2021, giving policymakers more leeway to push structural reforms. Read more .

The Chinese politburo, a supreme decision-making body of the ruling Communist Party, said on Monday it would keep economic operations within a reasonable range in 2022 and promote the healthy development of the real estate sector, the news agency said. Xinhua official.

“The key question on the minds of investors is whether the government is ready to change the political position in the real estate sector, to what extent will it be changed and if a change in position can really help turn the sector around. “said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management.

China’s decision to steer developers away from rampant borrowing has resulted in loan losses for banks and difficulties in credit markets. It also exacerbated a liquidity squeeze at developer China Evergrande (3333.HK) and other real estate companies. Read more

Authorities said on Friday they would step in and oversee the company’s risk management. Read more

Authorities recently made changes to financing to help homebuyers and expanded fundraising channels for some developers.

The new variant of the Omicron coronavirus also added uncertainty, as Beijing’s zero COVID approach to eradicating local cases has hit many small businesses.

($ 1 = 6.3749 yuan Chinese renminbi)

Beijing newsroom report; Editing by Sam Holmes, Ed Osmond and Carmel Crimmins

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