China cuts bank reserve requirement to spur economy amid trade war

China to cut bank reserve requirement ratio

China to cut bank reserve requirement ratio

The world's two largest economies are reportedly set to hold trade talks in Beijing next week.

In addition, the central bank will likely inject more funds to the banking system through TMLF loans, a RRR cut or a targeted RRR cut around the Chinese New Year holiday falling on 5 February this year.

"The move will offset liquidity fluctuations caused by cash injections before the Spring Festival this year, and will help financial institutions continue to strengthen support for small and micro businesses as well as private businesses", the central bank said.

The People's Bank of China (PBOC) decided Friday to cut the reserve requirement ratio (RRR) for RMB deposits by 1 percentage point.

But analysts see a further deceleration this year, even if a trade deal with the United States is reached. Zhang Yu, a research director at Huachuang Securities, thinks there could be an RRR cut in mid-January.

Economists believe the government could take more fiscal steps by cutting taxes and boosting spending on infrastructure, amid expectations that the budget deficit ratio could be lifted to 3 percent in 2019 from 2.6 percent a year ago.

"Increasing investment on infrastructures such as railways, motorways and airports will also be conducted".

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China predicts a GDP growth of 6.5% in 2018, compared with 6.9% in 2017.

China's economic growth is expected to have cooled to around 6.5 percent a year ago, in line with Beijing's target but down from 6.9 percent in 2017. "The central bank has been handing liquidity to the banks, but the banks are unwilling to lend".

The latest easing sign came on Wednesday evening, when the PBoC adjusted a rule to boost the impact of previous RRR cuts.

He made the comments at a meeting with officials of the country's banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China and China Construction Bank.

The People's Bank of China has chose to ease the reserve requirement ratio criteria for small and micro-sized enterprises, in hopes of boosting lending to these companies, The Economic Observer reported.

"We will maintain reasonable and sufficient liquidity, maintain reasonable growth in the scale of money and credit and social financing, stabilize macro-leverage, and seek internal and external balances", it said.

China's manufacturing purchasing managers index fell into the contraction territory last month, the weakest since early 2016.

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