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China to cut reserve requirement ratio by 50 bps from December 15

Updated:2021-12-07 16:05:27

China's central bank announced on Monday that it will cut reserve requirement ratio (RRR) by 50 bps from December 15 to bolster the real economy.

The cut, the second such move this year, will release 1.2 trillion yuan ($190 billion) in long-term liquidity and will lower capital costs for financial institutions by around 15 billion yuan each year, the People's Bank of China (PBOC) said in a statement.

The weighted average RRR for financial institutions would be 8.4 percent after the new cut, and the cut will not apply to financial institutions with an existing ratio of 5 percent, said the PBOC.

The decision is made to keep liquidity reasonably ample and to step up cross cyclical adjustments in a bid to better support the economy, the central bank said.

China will not resort to flood-like stimulus and will keep the prudent monetary policy, according to the statement.

Lowering RRR is in line with market expectation, Wang Dan, chief economist at Hang Seng Bank (China), wrote in a note to CGTN.

Investment in the manufacturing sector has continued to accelerate in the past few months, and a large amount of it relates to environmental protection transformation and industrial upgrading, said Wang.

An appropriate increase in liquidity will reduce business funding costs and improve the real economy's ability to defend against risks, she added.

China's economic growth slowed to 4.9 percent in the third quarter, reflecting downward pressure. UBS predicted China's economic growth to reach 2.7 percent in the fourth quarter, and its economic expansion for 2022 to hit 5.4 percent.

The RRR cut reflects China's intention to stabilize market expectation and growth, wrote Zhang Ning, a senior economist with UBS, in a note to CGTN. Zhang expects additional RRR cuts and easier credit policy to come in the future.

Separately, the Political Bureau of the Communist Party of China (CPC) Central Committee held a meeting on Monday with an emphasis on economic stabilization.

A prudent monetary policy must be flexible and appropriate in keeping liquidity reasonable and sufficient, the meeting said.