For the second time this year, China’s central bank announced on November 25 that it would cut the amount of deposits that banks must set aside, freeing up nearly $70 billion in long-term liquidity to shore up the COVID-hit economy.
According to a The Strait Times report, The People’s Bank of China (PBOC) said it will lower the reserve requirement ratio for banks by 0.25% to 7.8% starting December 5.
The reduction will apply to almost all banks, excluding those implementing a 5% reserve ratio.
The Strait Times noted that this is the second cut this year following the 0.25% reduction in April. Since 2018, the central bank has lowered the reserve requirement ratio 14 times from 14.9%, injecting about $1.39 trillion into the economy.
The PBOC said that the move will “keep liquidity reasonably sufficient and promote a steady fall in comprehensive financing costs.” It will also help support the economy at a stable growth rate, while avoiding engaging in “flood-like” stimulus.
However, analysts believe it will not be easy to see its effects very soon as people and factories now have less desire to borrow while under lockdown amid the new COVID flare-up.
Mark Williams, chief Asia economist at Capital Economics, said, “The reduction … will help banks follow through on a directive to defer loan repayments from firms struggling with widening lockdown restrictions. But few firms or households are willing to commit to new borrowing in this uncertain environment.”
In addition, SCMP reported that the stringent “zero-COVID” measures have also taken a toll on the country’s economy. Both exports and retail sales plunged last month due to falling business and a lack of consumer confidence.
Larry Hu, chief China economist at Macquarie Group, commented, “Epidemic prevention is now the biggest constraint on the economy.”
Regarding China’s economy, The Strait Times reported that the country’s growth rate in the last three quarters was only 3%, well under the 5.5% annual target the CCP set for this year.
Moreover, analysts also project a full-year growth rate of slightly over 3% for the world’s second-largest economy.