Central bank to relax reserve ratio criteria to enhance lending

China cuts banks' reserve ratio to support growth

China cuts banks' reserve ratio to support growth

The central bank said this will help expand coverage of its preferential policies and guide banks to better meet the credit demand of small companies.

Larger banks are still required to hold in reserve 13.5 per cent of their deposits at the central bank, and Wen said this ratio was still too high and needed to be lowered so that banks had more money to lend. "As a result, tight financial regulation and control of the real-estate sector is necessary".

Keeping employment stable relies on numerous small and micro-sized enterprises, whose development requires the support of inclusive financing, a promising and beneficial cause, Li made the remarks during a visit to Bank of China, Industrial and Commercial Bank of China, and China Construction Bank.

The annual Central Economic Work Conference set the monetary policy tone as prudent in 2019. Medium-term Lending Facility loans maturing in the first quarter won't be rolled over, and the amount of liquidity released will be able to offset the funding squeeze ahead of the Chinese New Year, it said.

"This speedy RRR cut with great intensity fully demonstrates the determination of policymakers to stabilise growth", said Yang Hao, an analyst at Nanjing Securities.

Li said the government will stick to the basic tone of seeking progress while maintaining stability, maintain the consistency and stability of the macro policy and enhance counter-cyclical adjustments.

Yu Yongding, a renowned Chinese economist and a former member of the central bank's monetary policy committee, said this week that it is not feasible for the PBOC to chase different policy goals at the same time while other central banks generally only focus on inflation. It also highlighted maintaining market liquidity at a reasonably ample level. Corporate tax payments and maturities of lenders' interbank debt will also mop up liquidity, prompting authorities to step up cash injections.

But with the news, released on Wednesday evening, failing to specify an exact figure, the fact that estimations range from 400 billion yuan (US$58.27 billion) to as much as 700 billion yuan (US$101.97 billion) is seen to reduce the transparency of the policy, making it hard to calculate the exact effectiveness.

The monetary policy transmission mechanisms will be further smoothed out while the proportion of direct financing will be increased to make financing more accessible and affordable for the private sector and small businesses, according to a statement issued after the meeting.

This article was originally produced and published by China Daily.

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