BEIJING—China said on Friday it would cut the amount of cash that banks must hold as reserves for the first time this year, releasing about 530 billion yuan ($83.25 billion) in long-term liquidity to cushion a sharp slowdown in economic growth.
The People’s Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for all banks by 25 basis points (bps), effective from April 25, but analysts said it might not yet be enough to reverse the slowdown.
Heightened global risks from the war in Ukraine and within China widespread COVID-19 lockdowns and a weak property market have triggered convulsions in the world’s second-largest economy that are quickly spilling over into global supply chains.
China’s exports, the last major driver of growth, are also showing signs of fatigue, and some economists say the risks of a recession are rising.
“I don’t think this RRR cut matters that much for the economy at this stage,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting it was less than markets had expected.
“The main challenge the economy faces is the Omicron outbreaks and the lockdown policies that restrict mobility. More liquidity may help on the margin, but it doesn’t address the root of the problem,” he said.
For city commercial banks that do not have cross-provincial business and rural commercial banks that have an RRR of more than 5 percent, they are entitled to an additional cut of 25 bps.
Headwinds
The cut, which follows a broad-based reduction in December, had been widely expected after China’s State Council said on Wednesday that monetary policy tools should be used in a timely way to bolster growth.The PBOC has also started cutting interest rates, while local authorities have expedited infrastructure spending and the finance ministry has pledged more tax cuts.
China’s economy cooled over the course of 2021 due to persistent property market weakness and strict measures to contain COVID-19 flare-ups, which hurt consumption.
The Chinese communist regime’s attempt to halt the latest spread of record COVID-19 cases has clogged highways and ports, stranded workers and shut countless factories—disruptions that are ripping through global supply chains for goods ranging from electric vehicles to iPhones.
China’s imports unexpectedly fell in March as the restrictions hampered freight arrivals and weakened domestic demand, while export growth also slowed. Factory and services sector activity both contracted.
With other major central banks such as the U.S. Federal Reserve set to aggressively raise interest rates or already doing so, more forceful easing in China could spur potentially destabilizing capital outflows as investors shift money to higher yielding assets.
Earlier on Friday, the PBOC kept the rate on its medium-term lending facility unchanged for a third straight month, as expected.
