BEIJING: China will cut the amount of cash that banks must hold as reserves, releasing around 1 trillion yuan ($154.19 billion) in long-term liquidity to underpin its post-COVID economic recovery that is starting to lose momentum.
The People's Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps), effective from July 15.
The world's second-largest economy has largely rebounded to its pre-pandemic growth levels, driven by a surprisingly resilient export sector. But growth is losing steam and smaller firms are bearing the brunt of a recent surge in raw material prices.
Many analysts believe pent-up COVID demand has now peaked and that growth rates will start to moderate in the second half of the year, weighed down by weakening exports, surging producer price inflation and Beijing's continued crackdown on the property market.
"I see it as more or less a fine-tuning rather than a signal that there is more monetary easing coming," said Elwin de Groot, head of macro strategy at Rabobank.
"It was already signalled to some extent because we had seen some tightening in Chinese money markets, and this is basically to alleviate these pressures."
HELP TO REPAY LOANS
The PBOC said its prudent monetary policy remained unchanged. Part of the liquidity released will help financial institutions to repay maturing medium-term lending facility (MLF) loans, and will also help ease liquidity pressure caused by tax payments, it said.
The central bank said the weighted average RRR for Chinese financial institutions would fall to 8.9% after the cut.
Banks that are subject to an RRR of 5% will be exempted from the new cut.
The PBOC last cut the RRR in April last year, when the Chinese economy was still badly affected by the coronavirus crisis. As the economy staged its strong rebound, the PBOC shifted to a moderately tightening bias.
China's cabinet said on Wednesday that authorities would use timely cuts in RRR to help small firms cope with the negative impact from rising commodity prices, in an announcement that surprised the markets.
China's May factory gate prices rose at their fastest annual pace in over 12 years in June due to surging commodity prices. Coupled with supply chain issues, including a global shortage of semiconductors, industrial output slowed for the third straight month in May.
Underlying demand remains weak in China. Consumer inflation, which eased in June, still fell way short of the government's target of around 3%.
The economy is widely expected to grow more than 8% this year, against the government's modest growth target of over 6%, suggesting there is no big pressure to step up easing.
A former PBOC official said earlier this week that Beijing should guide market interest rates lower to support economic growth and ease funding pressures on local governments.
($1 = 6.4854 Chinese yuan renminbi)
Reuters
Fri Jul 09 2021
Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018. REUTERS pic
Who is Prabowo Subianto, incoming president of Indonesia?
A wealthy ex-general with ties to Indonesia's popular outgoing president and its dictatorial past, looks set to be its next leader.
Iran's supreme leader says Hamas leader's death will not halt 'Axis of Resistance'
The "Axis of Resistance", built up with years of Iranian support, includes Hamas, the Lebanese Hezbollah group, the Houthi movement in Yemen, and various Shi'ite groups in Iraq and Syria.
Putin says Russia willing to seek compromises between Iran and Israel
Russia is ready to help seek compromises between arch-foes Israel and Iran, President Vladimir Putin said on Friday, saying these would be difficult but possible.
What proposals will Russia push at the BRICS summit?
The proposal is also to establish a BRICS reinsurance company to allow uninterrupted shipment of goods and key commodities between members.
Indonesia's free meals plan in the spotlight as Prabowo readies for office
Prabowo calls the programme one of the main drivers of economic growth, eventually set to add an estimated 2.5 million jobs.
Astro AWANI's revamped English news website, AWANI International, launches on Oct 21
Astro AWANI's revamped English platform delivers in-depth global news and expert analysis to keep you informed on key developments.
Israeli strikes kill 33 people in Jabalia refugee camp in Gaza, medics say
Residents of Jabalia said Israeli tanks had reached the heart of the camp after pushing through suburbs and residential districts.
Liam Payne's ex-partner calls for media restraint after 'painful' death
Cheryl Tweedy used her statement to urge the media to remember they had a seven-year-old son, Bear, who could read the reports.
Analysts: Indonesia's strong MoF leadership team to boost investor confidence
Sri Mulyani Indrawati as head of Indonesia's Ministry of Finance is expected to instil confidence among investors.
Biden offers both a carrot and a stick to Israel as his term nears an end
Israel has frequently resisted US advice and has caused political difficulties for the Biden administration.
Putin says BRICS will generate most of global economic growth
Russian President Vladimir Putin will host a summit of the group in the city of Kazan on Oct. 22-24.
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.