The People’s Bank of China (PBOC) became the first central bank in 2019 to change its monetary policy stance, lowering its reserve requirement ratio for large financial institutions by a total of one percentage point, resulting in the release of a net 800 billion yuan in funds can be used to boost loans to private companies.
The cut in the amount of funds that banks must hold at China’s central bank will take place in two steps, with the first cut of 0.5 percentage points as of Jan. 15 and the second of 0.5 points as of Jan. 25, coinciding with the Spring Festival, also known as Chinese New Year of the Lunar New Year, when liquidity conditions tend to tighten.
The lower reserve requirement will release a total of about 1.5 trillion yuan of funds but the PBOC will not renew a Medium Term Lending Facility (MLF) that expires in the first quarter of this year, resulting in a net release of 800 billion yuan.
In its statement, PBOC said China’s economy was continuing to develop in a healthy manner and it would continue to implement a “prudent” monetary policy, with a “moderate” degree of tightness.
A spokesman added the cut in the reserve ratio did not signify a “flood” of funds and the orientation of a stable monetary policy had not changed.
PBOC’s has now cut its reserve requirement for large banks four times since 2017.
In 2018 the reserve ratio was cut by a total of 250 basis points, with the ratio cut by 100 points in April – the first cut since February 2016 – then by 50 points in June and by 100 points in October.