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China to cut reserve requirement ratio, with monetary policy unchanged
10 October 2018, 08:28 | Kelvin Horton
The PBOC said it will cut for most lenders the amount of cash set aside as reserves from Oct. 15
The decision by China's central bank to cut the amount of reserves held by banks is an indication that authorities in the world's second-largest economy are getting nervous about a long-drawn trade war with the us, experts said.
The report further stated that the RRR now stands at 15.5 per cent for large institutions and 13.5 per cent for smaller banks, and will be cut by 100 basis points from October 15, the central bank said.
Economists predicted further cuts ahead.
Equity markets around the world came under pressure last week after a steep sell-off in U.S. Treasuries, prompted by hawkish comments from U.S. Federal Reserve officials and data widely seen as bolstering the case of further U.S. rate hikes.
Sunday's move will inject a net 750-billion yuan (US$109.2-billion) in cash into the banking system by releasing a total of 1.2-trillion yuan in liquidity, with 450-billion yuan of that to offset maturing medium-term lending facility (MLF) loans.
Shares in Asia staggered on Monday as China's markets stumbled despite its central bank moving to pump more liquidity into the broader economy, as worries grow of a sharp knock to growth from an escalating trade dispute with the United States.
U.S. Vice President, Mike Pence in his speech last week increased Washington's pressure crusade against Beijing on Thursday by hinting malign Chinese efforts to emasculate Donald Trump before congressional elections that are about to take place next month.
The United States, Europe and other trading partners say initiatives such as "Made in China 2025", which calls for state-led creation of champions in robotics and other fields, violate Beijing's obligations to open up its market to foreign companies. Trade is not as important to China as it once was, thanks in part to the rise of a middle class that has been a ready buyer of Chinese goods at home. That would represent a decline of another 1 percent from Monday's level.
Foreigners dumped 9.7 billion yuan (S$1.94 billion) of A shares through exchange links with Hong Kong on Monday, just short of a record hit eight months ago, as mainland markets reopened after a week-long break.
But China has bigger problems than the trade war. He also assured that the government has implemented measures to help the companies affected by the trade war.
The central bank claimed the move would have little impact on the yuan, saying it had solid fundamentals and would remain stable, but reduced the central parity rate against the dollar by 165 basis points yesterday, to 6.8957.
The PBOC will continuously implement a prudent and neutral monetary policy, refrain from using a deluge of stimulus and focus on targeted adjustment to maintain sound and sufficient liquidity, facilitate rational growth in monetary credit and social financing and create a proper monetary and financial environment for the country to pursue high-quality economic development and advance the supply-side structural reform, it said.
"The RRR cut announced today sends a clear easing signal", Bank of America Merrill Lynch said in a research note.
China's economic growth rate slowed to 6.7% in the second quarter YoY but still remains above the targeted 6.5%. But some key activity indicators have weakened more sharply.