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China Cuts Reserve Requirement Ratio

centarlbkchina june25 06dec21 lt

China's central bank lowered its reserve requirement ratio for the second time this year in order to support growth that is widely expected to weaken at the end of the year.

The People's Bank of China decided to cut the RRR for major commercial banks by 50 basis points. The reduction will take effect on December 15.

The current cut in reserve requirement ratio is set to release CNY 1.2 trillion in long-term liquidity.

The latest PBoC announcement came after Premier Li Keqiang last week said the central bank will reduce the RRR in a timely way.

The bank had reduced the RRR by 0.5 percentage points in July.

The latest RRR cut will have only a small economic impact, Julian Evans-Pritchard, an economist at Capital Economics, said. However, it will form part of a wider effort to push down interest rates.

The economist expects policy rate cuts before long, but said that there still appears to be little appetite at the central bank for a sharp rebound in credit growth.

This RRR cut gives a signal to the market that the government has turned from aggressive policy actions in the second half of this year to stabilizing the economy in 2022, Iris Pang, an economist at ING, said.

ING expects the RRR cut to boost fixed asset investment in infrastructure, transportation and telecommunications in 2022, and this would be the main engine of economic growth.

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