China has allowed its five biggest banks to temporarily lower the amount of money that they must hold as reserves to relieve pressure in the financial system as demand for cash surges ahead of the Lunar New Year holiday, three sources with direct knowledge of the matter said.
The People’s Bank of China cut the reserve requirement ratio for the banks by a full percentage point to 16%, the sources said.
Analysts estimate that every 50 basis point cut in the ratio system-wide effectively injects about US$100 billion of long-term cash into the economy, which recorded its slowest growth in 26 years last year.
Analysts estimate that every 50 basis point cut in the ratio system-wide effectively injects about US$100 billion of long-term cash into the economy, which recorded its slowest growth in 26 years last year.
The central bank’s first reduction in nearly a year comes after it pumped a record amount of liquidity into markets this week in a bid to avert a cash crunch heading into the country’s biggest holiday of the year.
Short-term funding costs had spiked to their highest levels in nearly 10 years earlier this week on fears that liquidity was sharply tightening, sparking a jump in the yuan currency.
“Today’s move seems to suggest that liquidity conditions are tighter than authorities’ expectations, as capital outflows remain strong,” said Zhou Hou, senior emerging markets economist at Commerzbank in Singapore.
“An outright easing will add pressure on the yuan exchange rate as well. That could be the reason behind today’s strange move.”
The central bank will restore the ratio to the normal level at an appropriate time after the holiday, the sources said.
The five biggest lenders are Industrial & Commercial Bank of China, China Construction Bank, Bank of China, Bank of Communications (BoCom), and Agricultural Bank of China.
Hey! This is not how we(China) forsaw this! How about we back up, until such time as we (China) may take over the world? Oh, heck. Golly gee! May we lower the depost, for now? Awe jeepers.