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China Cuts Reserve Requirement Ratio

centarlbkchina june25 13mar20 lt

China's central bank lowered the reserve requirement ratio for qualified banks in order to shore up the economy hit by the outbreak of coronavirus epidemic.

To improve liquidity and pushdown borrowing costs, the People's Bank of China on Friday reduced the reserve requirement ratio, or RRR, by 50-100 basis points for qualifying banks. This was the second cut in RRR this year.

The new ratio, which takes effect on March 16, will release CNY 550 billion in the financial system.

This additional liquidity should push down interbank rates, Julian Evans-Pritchard, an economist at Capital Economics, said. Evans-Pritchard expects another another 40 basis points of cuts to the PBoC's MLF rate and reverse repo rates in the coming months.

The PBoC's ongoing monetary easing efforts should be able to drive a pick-up in credit growth later this year, providing a tailwind to the post-virus economic recovery, the economist said.

Another official data showed that foreign direct investment into China declined 8.6 percent in January to February period from the same period last year amid outbreak of coronavirus and extended Lunar New Year holidays.

In February, FDI declined 25.6 percent from the same period last year.

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