PBOC Cuts Bank’s Reserve Requirements as Growth Stalls

Source: Bloomberg 

China’s central bank has reduced its reserve requirements for most of its lenders by 25 basis points and 50% for smaller banks to cushion the slowing economy. CSI 300 is down -0.67%, USDCNY is down -0.10%.

• The change is expected to become effective on April 25, generating around 530 billion yuan or $83 billion of liquidity to the economy.
• Officials drawn from various state agencies have warned of growing risks to Chinese growth, reiterating calls for more monetary and fiscal support to the economy. 
• The reduced reserve requirement is expected to boost major Chinese banks, which downgraded their 2022 growth forecasts, while analysts point to a slower economic expansion of 5% this year.
• Officials have also urged the banks to lower their deposit rate to ease financing costs and boost lending.
• The move by PBOC happened even as the central bank refused to reduce the interest rates, against the expectations of the market.  
• Economists still warn that PBOC’s room for further RRR reductions is shrinking while the tool is becoming less effective in tackling structural issues. The analysts say the central bank could be prompted to use alternative means.