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China central bank cuts reserve requirement ratios for banks

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China central bank cuts reserve requirement ratios for banks

As expected, the People's Bank of China on Sept. 6 cut the reserve requirement ratio for all banks by 0.5 percentage points, effective Sept. 16, to boost tapering economic growth.

In addition, the central bank will cut the reserve requirement ratio by 1 percentage point for some city commercial banks, in a bid to support small and micro enterprises. This will be implemented in two phases, with the first 0.5 percentage point cut taking effect Oct. 15 and the other Nov. 15.

The central bank said the cuts will support economic growth and reduce financing costs, amid trade tensions with the U.S.

The central bank's move came after China's State Council on Sept. 4 called for cuts to banks' reserve requirement ratios, and said the country should speed up the process of lowering actual interest rates. It has been cutting the reserve requirement ratios to increase liquidity and boost economic growth.

The latest cut will inject 900 billion yuan of liquidity into the economy, Bloomberg News reported, citing the central bank.

Meanwhile, Capital Economics said it anticipates two 200 basis points worth of reserve requirement cuts from the PBOC by early 2020, alongside a 75-basis-point reduction in its 7-day reverse repo rate and 1-year medium-term lending facility rate. "This should feed through to similar-sized decline in the Loan Prime Rate (LPR), upon which new loans are now priced," Julian Evans-Pritchard, senior China economist for Capital Economics.

"Given that the headwinds to China's economy from weaker external demand and cooling property construction are likely to intensify in the coming months we doubt the PBOC will stop at just one RRR cut," said Evans-Pritchard added in a note.

As of Sept. 5, US$1 was equivalent to 7.15 Chinese yuan.