Chinese Central Bank Flags Further RRR Cuts, 500B Yuan Re-loan Quota, as Coronavirus Outbreak Continues

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The People’s Bank of China (PBOC) has flagged further cuts to the reserve requirement ratio (RRR) as the Chinese government continues to stress the need for measures to keep the economy afloat during the coronavirus outbreak.

Liu Guoqiang (刘国强), PBOC deputy-governor, said that the Chinese central bank would “implement dynamic assessments for 2019 financial inclusion targeted RRR cuts at an opportune time, for the purpose of releasing long-term liquidity.”

Liu made the remarks at a press conference held by the State Council on 27 February.

The PBOC deputy also highlighted the need for more flexible monetary policy, and placing greater emphasis on support for the recovery of growth of the real economy.

“[PBOC] will provide vigorous monetary policy support for combating the disease, expediting growth of the real economy and reducing the impacts of the disease on the economy to the greater extent possible, and strive to complete full year social and economic targets,” said Liu.

Liu outlined measures across three key areas for supporting the Chinese economy during the coronavirus outbreak:

  1. Maintaining rationally ample liquidity. Making integrated usage of medium-term lending facilities, open market operations and other tools to satisfy the liquidity needs of financial institutions supporting the resumption of work and production by enterprises, reducing social financing costs and expediting stable operation of financial markets. Stabilising macro-leverage ratios, maintaining fundamentally stable price levels, appropriately dealing with the shock of the coronavirus and short-term downward pressure on the economy. Balancing the relationship between stable growth and risk prevention.
  2. Making comprehensive use of structured monetary policy tools, and expanding support for micro, small and medium enterprises resuming work and production in accordance with market and rule-of-law principles. Implement enterprise name list system regulation of specialist re-loans, and strictly restrict usage of funds. This is to ensure that during the key period for fighting the coronavirus, low-cost funds will flow to key enterprises first. Increase the re-loan and re-discount quota by 500 billion yuan in total for financial inclusion purposes, and provide support to enterprises that satisfy conditions by means of market-based methods. Reduce the rate for agricultural and small-business support re-loans from 2.75% to 2.5%.
  3. Employing the overall collective strength of the financial system, and guiding different types of banks to make discounted loans based on category. National banks have broader sources of funds and their costs are comparatively low, while recent low market rates have already effectively reduced the cost of bond issuance and interbank certificates of deposit. Further assessments of financial inclusion targeted RRR cuts will also unleash funds, and national banks must effectively embody the role of “squadron leader.” Policy banks play a positive role in the areas of counter-cyclical adjustments and supporting efforts to compensate for shortcomings. They must provide support to the resumption of work and production by micro, small and medium enterprises by means of increases in total lending, special lending quotas and discount loans. Local legal person banks are “mainstay troops” for servicing the local economy and supporting micro, small and medium enterprises. The central bank will resolve problems such limited sources of funds and the high cost of funds by means of the provision of low cost funds, and guide an expansion in lending towards micro and small enterprises resuming work and production.

Earlier in the week on 24 February PBOC deputy-gov­ernor Chen Yulu (陈雨露) also high­lighted the need for dy­namic ad­just­ments to tar­geted RRR cuts, and en­abling more banks that qual­ify to ben­e­fit from re­duc­tions. 

Chen said that the Chi­nese cen­tral bank would ex­pand the vigour of ad­just­ments to mon­e­tary pol­icy, and that at pre­sent Chi­nese mon­e­tary pol­icy still had “am­ple space.”

PBOC has adopted a slew of targeted measures for supporting the Chinese economy since the coronavirus outbreak, including 300 billion yuan in specialist re-loans for key enterprises.

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