Li Keqiang Flags Further Use of Required Reserve Cuts

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Premier Li Keqiang has highlighted the potential use of more cuts to China’s required reserve ratio at a recent meeting of the State Council.

A routine meeting of the State Council convened by Li on 4 September called for the “timely application of policy tools including general reserve reductions and targeted reserve reductions,” as part of broader efforts to drive “the use of more funds for financial inclusion.”

The meeting also called for “rapidly implementing measures to reduce real interest rate levels,” and “expanding the vigour of support provided by finance to the real economy, and micro and small-enterprises in particular.”

The People’s Bank of China (PBOC) implemented four reserve cuts in 2018 for a total reduction of two percentage points, followed by cuts in January 2019 that resulted in a one percentage point reduction.

On 6 May PBOC announced the launch of targeted reserve cuts for rural banks in order to expedite lending to regional parts of China as well as micro and small enterprises.

Wen Bin (温彬), chief researcher with China Minsheng Bank, said to Diyi Caijing that there is “still need for a general reserve reduction,” under the precondition that monetary policy remains stable.

“At present, easing growth in the global economy has become a set condition, and central bank monetary policy around the world has also started to re-loosen,” said Wen. “[This] includes the US Fed’s recent re-launch of the purchase of treasury bonds.”

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