China’s central bank has cut the reserve requirement ratio for most commercial banks for the 4th time in 2018 as it seeks to offset the slowing pace of economic activity.
The cut was announced the night before Chinese financial markets re-open after being closed last week for the Golden Week holiday, especially the currency markets where the value of the currency weakened last week in offshore dealings.
The People’s Bank of China cut the reserve ratio by one percentage point, in a move it said would inject Rmb750 billion or $US109 billion into the banking system.
The move follows weak data on manufacturing and service sector activity. Data on Friday will update the trade account for September and the quarter, and bank lending.
China’s economic growth rate slowed slightly to 6.7% in the second quarter year-on-year, still well above the government’s full-year target of around 6.5%. The third quarter figures are out this Friday week.
But fixed-asset investment is growing at the slowest pace on record, while non-performing loans surged in the second quarter and defaults climbed. Retail sales remain sluggish.
The People’s Bank of China said on Sunday night that the cut applied to large commercial banks, local commercial banks and foreign banks to shore up their liquidity and to help them increase support for “small and medium enterprises, private enterprises and innovative enterprises”.
China’s reserve requirement ratios for large and small banks will be cut from 15.5% and 13.5% respectively, effective from October 15. Although well below their peak of 21 percent in 2011,
Meanwhile, figures out yesterday showed that China’s foreign exchange reserves fell $2US2.7 billion in September from the previous month to $US3.09 trillion.
That was a slightly larger drop than expected, as the government intervened in currency markets last month to support the renminbi.
The central bank said that the reserve ratio cut was “reasonable and moderate, and will not lead to depreciation pressure”, adding that its overall monetary policy had not changed and overall liquidity in the banking system was stable.