Beijing Slashes Reserve Ratio To Boost Liquidity

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2020-04-03 HKT 19:03

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  • The services sector on the mainland is struggling to get back on its feet after a brutal month of unprecedented shop closures. Photo: AFP

    The services sector on the mainland is struggling to get back on its feet after a brutal month of unprecedented shop closures. Photo: AFP

The mainland’s central bank said on Friday it was cutting the amount of cash that small and mid-sized banks must hold as reserves, releasing around 400 billion yuan in liquidity to shore up the economy, which has been badly jolted by the coronavirus crisis.

The latest stimulus move comes as the world's second-largest economy looks likely to shrink for the first time in 30 years and hopes for a quick recovery are being soured by the rapid spread of the disease worldwide, crushing global demand.

The People's Bank of China (PBOC) said on its website it will cut the reserve requirement ratio (RRR) for those banks by 100 basis points (bps) in two equal steps, the first effective as of April 15 and the second as of May 15.

The mainland has about 4,000 small and mid-sized banks. The latest cuts would lower their RRR to 6%.

In addition, the interest rates on financial institutions' excess reserves with the central bank would be reduced to 0.35% from 0.72%, effective April 7, the PBOC said.

The RRR cut was flagged by the cabinet on Tuesday along with other support measures as Beijing tries to cushion the economic blow from the pandemic, which is fanning worries about heavy job losses.

While most of the country's factories are believed to be up and running again, though not at normal levels, a private survey earlier on Friday suggested services companies are still struggling to get back on their feet and cut jobs in March at the fastest pace since at least 2005.

Many are small, privately owned firms with less cash to see them through a prolonged downturn than large, state-owned enterprises. (Reuters)

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