Photo: Xinhua/Cai Yang
BEIJING, Jan. 25 (Xinhua) -- China's central bank will reduce the amount of reserve requirements that financial institutions must set aside next month in an effort to boost economic recovery and confidence. The reserve requirement ratio (RRR) for financial institutions will be cut by 0.5 percentage point from Feb. 5, providing long-term liquidity of one trillion yuan (about 140.76 billion U.S. dollars), People's Bank of China Governor Pan Gongsheng said at a press conference on Wednesday.
The central bank also announced on Thursday that it would cut interest rates for re-loans and re-discounts to the rural sector and small businesses by 0.25 percentage point. These measures, according to Pan, will help lower the base lending rate or LPR, the market reference rate for loans, and thus better serve the real economy.
Mr. Gongsheng said the country still has "ample room" to maneuver monetary policy and the central bank will strengthen countercyclical and cross-cyclical adjustments to create a favorable monetary and financial environment for the economy. The announcement of the first RRR cut this year, which followed two cuts last year, was a strong boost to financial markets. The benchmark Shanghai Composite Index jumped 3.03 % on Thursday, its biggest daily gain since March 16, 2022, while the smaller Shenzhen Component Index rose 3 %.
Analysts saw the move as a timely boost to the economy and sending a strong positive signal of the authorities' determination to strengthen support for the economy and the capital market. The RRR cut, which comes earlier and to a greater extent than the market expected, will boost business and investor confidence as well as economic recovery, said Dong Ximiao, senior research fellow at Merchants Union Consumer Finance Company Limited.
Ming Ming, chief economist at CITIC Securities, said the move will better coordinate with the country's fiscal policy, ensure the expansion of credit supply and consolidate the improving momentum of the economy. Last year, China's economy grew by 5.2 % from the previous year, higher than the annual target of around 5 %. In the fourth quarter, the economy grew by 5.2 % year-on-year and 1 % quarter-on-quarter.
According to Mr Gongsheng, the central bank will continue to use various monetary policy tools this year to keep liquidity at a reasonable and sufficient level. Analysts noted that the RRR cut, which comes ahead of the Spring Festival, which falls on February 10 this year, will help meet liquidity needs during the holiday. The overnight Shanghai Interbank Offered Rate (Shibor), which measures borrowing costs in China's interbank market, rose 3.6 basis points to 1.844 % on Thursday. The one-month rate remained unchanged at 2.3 %.
Xinhua/gnews.com/GoH_07
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