The Chinese central bank has unveiled another cut to the required reserve ratio less than a week after the start of the new year.
On 4 January the People’s Bank of China (PBOC) announced that it would reduce the required reserve ratio for Chinese financial institutions by 1 percentage point, to be implemented in the form of two 0.5 percentage point cuts scheduled for 15 January and 25 January.
PBOC also said that it would not be rolling over the medium-term lending facilities (MLF) – one of its key open market operations tools, that are scheduled to mature in the first quarter of 2019.
PBOC told domestic media that it expects the required reserve cut to release 1.5 trillion yuan in funds, for a net release of 800 billion yuan in long-term funds given the suspension of MLF that are due in the first quarter.
“This arrangement will basically offset the liquidity fluctuations caused by cash releases in the lead up to the Chinese New Year, and be of benefit to expanding the vigour of support provided by financial institutions to small and micro-enterprises and private enterprises.”
According to PBOC the move will “further support growth of the real economy, optimise the liquidity structure and reduce financing costs.”
“PBOC will continue to implement stable monetary policy, maintain moderate elasticity, refrain from engaging in in flood-style irrigation, focus on targeted adjustments, maintain rationally ample liquidity, maintain rationally ample growth in monetary credit and total social financing; stabilise macro-leverage, and focus on internal and external balance, in order to create an appropriate monetary and financial environment for high-quality growth and supply-side structural reforms.”