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Chinese Central Bank cuts bank reserves and frees billions of dollars

Chinese Central Bank

Beijing, (Business News Report)|| Chinese Central Bank has cut reserve requirements for banks, aiming to free up billions of dollars in sluggish markets.

The move by the Chinese central bank comes in light of mounting fears of the consequences of the closure measures due to Coronavirus, which have disrupted the work of companies in the country.

The bank announced a reduction of the required reserve ratio by 0.25 percentage points for most banks as of April 25, and by 0.5 percentage points for small banks, at a time when China is fighting the worst outbreak of the Corona virus since the beginning of the pandemic.

In a statement, the bank indicated that this step will provide about 530 billion yuan ($83 billion) of long-term liquidity to be injected into the economy.

The spread of the Coronavirus in China has led to the imposition of closures in many cities in recent weeks, so that officials adhere to the zero-Covid policy to eliminate any outpost when it appears.

This situation forced factories to stop their operations, such as car manufacturers who warned this week of disruption to production, in addition to the announcement of major ports in Shanghai that they were unable to work due to the accumulation of goods.

The Chinese central bank said that the main goal of reducing the reserve requirement rate is to “guide financial institutions to use funds from the reserve to support industries and small and medium-sized enterprises that have been severely affected by the pandemic.”

Analysts considered that the move would have a limited impact on the slowdown in the economy.

Julian Evans-Pritchard, an expert on China economics at Capital Economics, said, “Reducing the reserve requirement should lower interest rates on loans, which may remove some pressure from debt-burdened borrowers.”

“However, applying this measure alone helps slightly to boost lending growth,” he added.

Que Zhang, chief economist at Pinpoint Asset Management, said the cut was less than the market had expected, noting that injecting “more liquidity may help the margins, but it does not address the root of the problem.”


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