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Home » China makes surprise rate cut to boost banking liquidity and the economy

China makes surprise rate cut to boost banking liquidity and the economy

by Leilani Sengtavisouk
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China’s central bank has made a surprise cut to the amount of money that banks must keep in reserve, in an effort to keep money flowing through the financial system and prop up the economy.

The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for almost all banks by 0.25 percentage points, effective March 27.

“[We must] make a good combination of macro policies, better serve the real economy, and maintain reasonable and sufficient liquidity in the banking system,” the PBOC said in a statement.

The late Friday move came as a surprise and follows a week of turmoil in global financial markets triggered by the failure of some regional US banks.

As recently as Wednesday, analysts from Goldman Sachs said they were expecting the PBOC to keep interest rates and the RRR “unchanged” through the first half of 2023.

The central bank had already injected hundreds of billions of yuan into the banking system since January, mainly through a medium-term lending facility, the analysts said.

The rapid collapse of the two US banks and troubles at Credit Suisse have stoked fears about the health of the global banking sector.

Regulators on both sides of the Atlantic have taken emergency measures since Sunday to provide liquidity support to troubled lenders and shore up the confidence in the banking system. On Thursday, a group of America’s largest banks stepped in to rescue First Republic Bank with a $30 billion lifeline.

Earlier this month, Yi Gang, governor of the PBOC, hinted at a news conference that monetary policy this year will be largely stable.

“The current level of real interest rates is relatively appropriate,” he said.

But he also acknowledged that the RRR cut “remains an effective monetary policy tool” to provide long-term liquidity and support the economy.

Source : CNN

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