On Friday, China’s central bank lowered bank reserves for the first time this year to boost liquidity and support a slow economic rebound.
Since coronavirus-related limits were unexpectedly withdrawn in December, Chinese policymakers have committed to boosting the world’s second-largest economy, which is slowly recovering from a pandemic-induced recession.
From March 27, the People’s Bank of China (PBOC) decreased the reserve requirement ratio (RRR) by 25 basis points for all banks except those with a 5% reserve ratio.
The move occurred sooner than financial markets expected, as statistics showed a moderate but uneven economic rebound in the first two months of the year and stronger-than-expected credit growth.
“Risks in the foreign banking industry are growing, global liquidity is under pressure, and the external environment is getting increasingly complex,” said China Minsheng Bank chief economist Wen Bin.
China’s primary economic indices improved in the first two months of this year, although the recovery base is still weak.
The central bank has not estimated how much long-term liquidity will be available after the reduction, allowing banks to lend more.
Experts predicted 500 billion yuan ($72.6 billion) would be released.
This year, the central bank will be “precise and aggressive” in assisting the economy by maintaining liquidity and cutting company finance costs.
“Make a solid mix of macro measures, increase the quality of services for the actual economy, and retain liquidity adequately sufficient in the financial sector,” it said of the cut.
State media stated Friday that China’s incoming premier Li Qiang would strengthen the economy while preventing severe dangers.
In December, all banks lowered 25 bps.