China cuts banks’ reserve ratio, signals more tools in pipeline to quell fears
- China’s central bank announced on Wednesday that the reserve requirement ratio for commercial banks will be reduced by 50 basis points from February 5
- The move is expected to inject 1 trillion yuan (US$140 billion) worth of liquidity into the market, but analysts are expecting more support measures
Beijing made substantial moves to quell market panic and revive investor confidence on Wednesday, as fears over a stock market rout and worries about China’s economic prospects continue to rise.
China’s central bank announced it would cut the amount of cash that commercial banks must hold as reserves from February 5.
It also slashed the relending and rediscount rate for bank loans designated for small firms and agricultural businesses by 25 basis points to 1.75 per cent, effective from Thursday.
Analysts, however, are expecting more supportive measures to follow suit.
We’ll create a good monetary and financial environment for the operation of financial markets, including capital markets
The 50-basis-point cut to the reserve requirement ratio (RRR) is expected to inject 1 trillion yuan (US$140 billion) worth of liquidity into the market, central bank governor Pan Gongsheng said at a press conference in Beijing on Wednesday.
