China Cuts Reserve Ratios for Some Banks, Pumps Out $79 Billion to Spur Virus-Hit Economy

March 13, 2020 Updated: March 13, 2020

BEIJING—China’s central bank said on March 13 it was cutting the amount of cash that banks must hold as reserves for the second time this year, releasing 550 billion yuan ($78.82 billion) to shore up the economy, which was sharply jolted by the coronavirus outbreak.

The People’s Bank of China (PBOC) said on its website that it would cut the reserve requirement ratio (RRR) by 50-100 basis points (bps) for banks that have met inclusive financing targets. The RRR for large banks is currently at 12.5 percent.

The central bank has been encouraging banks to lend more to small firms and other vulnerable sectors under its inclusive financing push, and has urged lenders to extend cheap loans and tolerate late payments from companies hit by the health crisis.

Qualified joint-stock commercial banks would enjoy an additional cut of 100 bps, it added.

The targeted cut, the ninth since early 2018, will be effective from March 16.

Financial markets had widely expected more support measures soon from the government and the PBOC to get the economy back on steadier footing. The country’s cabinet on Wednesday flagged more bank reserve cuts and other steps.

The PBOC has been ramping up policy easing since the coronavirus outbreak escalated in late January. China has cut several key interest rates, and some analysts are expecting another cut in the benchmark lending rate next week.

But on Friday, the PBOC reiterated that monetary policy would remain prudent, even if it is more flexible in prioritizing restoring economic growth. It said it would not open the credit flood-gates, a practice which had led to a rapid build-up in debt in the past.

The government has also rolled out fiscal support steps, including more funding for virus fight, tax waivers, cuts in social insurance fees and subsidies for firms.

More Expected

Analysts at UBS said in a note last week that they expected another 100 bps of RRR cuts for the remainder of 2020, a further 10 bps of medium-term lending facility (MLF) rate cuts, and possibly a deposit benchmark rate cut of no more than 25 bps later after consumer inflation eases notably.

Analysts polled by Reuters expected China’s economic growth to tumble to 3.5 percent in the first quarter year-on-year from the previous quarter’s 6.0 percent. Some believe it may even have shrank on a quarter-on-quarter basis.

Data on Saturday showed China’s exports contracted sharply in the first two months of the year, and imports declined, as the health crisis triggered by the coronavirus outbreak caused massive disruptions to business operations, global supply chains and economic activity.

For the year, growth was expected to slow to 5.4 percent, which would be the slowest since 1990.

Policy sources have said Chinese policymakers are debating whether to lower the planned 2020 economic growth target of around 6 percent, which was tentatively agreed late last year. Many private sector economists see that as well beyond China’s reach at this point.

China has yet to issue its 2020 target as the annual parliament meeting, which originally scheduled to open on March 5, has been postponed due to the virus outbreak.

By Kevin Yao, Yawen Chen, Stella Qiu and Ryan Woo