Tuesday, 11 December, 2018

China cuts banks' reserve requirement level

Behemoth oil stock the lone hero as China’s stocks rebound China attempts to boost flagging economy in the face of US trade war | Articles | CFO
Priscilla Morrison | 10 October, 2018, 15:01

These are now 15.5% for large commercial lenders and 13.5% for smaller banks.

A statement of the central bank said that some of the liquidity unleashed will be used to pay back the 450 billion yuan of the medium-term lending facility (MLF) that will mature on October 15.

It is the fourth time the nation's national bank has cut its save necessity this year.

With China's economy cooling and the full impact of US trade tariffs still to be felt, policymakers are shifting their priorities to reducing risks to growth, with the yuan and stock markets under pressure. "Also, capital outflows should be increasing due to mounting risks on China-U.S. trade war risks".

The People's Bank of China announced on Sunday a 100 basis points cut to the reserve requirement ratio (RRR) for most banks, which will result in an injection of 750 billion yuan ($109.2 billion) in cash into the banking system. Shanghai led the retreat as mainland investors returned from a week-long break, during which time China was accused of using microchips in computer equipment sold in the United States as part of a drive to steal technology secrets.

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Zeng Gang, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences, said using the RRR cut to replace the MLF operation could optimize the maturity structure of credit, allow financial institutions to access long-term funds steadily and therefore reduce the financing costs of the real economy. MSCI's broadest index of Asia-Pacific shares outside Japan .miapj0000pus was down 0.3 percent, after major stock markets around the world fell for a second straight day on Friday. Reflecting expectations of further yuan weakening, the one-year non-deliverable yuan futures in Hong Kong fell to around 7.015 against the dollar on Monday, the lowest level in 15 months. July saw a rise in nationwide jobless rate to 5.1%. Markets in Japan are closed for a holiday.

Average interest rates faced by companies have edged down since April, as a more generous liquidity policy from the PBOC has lowered market rates, even as benchmark lending rates remained unchanged, Oxford Economics said in a report on Thursday. Before trading began on Monday, the PBOC set the midpoint of the yuan's daily trading band at 6.8957 per dollar, its weakest level since May 11, 2017.

However, Beijing has refused to yield to USA complaints that the Chinese government steals or pressures foreign companies into handing over technology. Richard Jerram, chief economist at Bank of Singapore, said while the Fed would not be panicked by the increase in wages "evidence that tight capacity conditions-such as a low unemployment rate-are pushing prices higher will keep them on the current tightening path".

Xu further added, "The trade war's impact on the economy is showing. The RRR cut will help but the China economy will need more monetary policy persuasion to snap its current funk".

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