China surprise rate cut to boost bank liquidity and economy

Hong Kong

China’s central bank unexpectedly cut the amount of money banks must hold in reserve to keep money flowing through the financial system and support Economy.

The People’s Bank of China (PBOC) said it would cut its reserve requirement ratio (RRR). almost all banks by 0.25 percentage points since March 27.

“[We must] combine macroeconomic policies well, better serve the real economy, and maintain prudent and sufficient liquidity in the banking system,” the NBK said in a statement. statement.

Friday’s late move came as a surprise and followed the week turmoil in global financial markets caused by the bankruptcy of some US regional banks.

As recently as Wednesday, analysts at Goldman Sachs said they expected the NBK to keep interest rates and RRR “no change” during the first half of 2023.

The central bank has already injected hundreds of billions of yuan into the banking system. system since January, mainly due to medium-term lending, analysts say.

The rapid collapse of two US banks and problems at Credit Suisse heightened concerns about the health of the global banking sector.

Regulators on both sides of the Atlantic have taken emergency action since Sunday to ensure liquidity for troubled lenders and bolster confidence in the banking system. On Thursday, a group of America’s biggest banks stepped in to save First Republic Bank with a $30 billion lifeline.

Earlier this month, Yi Gang, governor of the People’s Bank of China, hinted at a press conference that monetary policy would be largely stable this year.

“The current level of real interest rates is relatively acceptable,” he said.

But he also acknowledged that the RRR cut “remains an effective monetary policy tool” to provide long-term liquidity and support the economy.