China's central bank to trim reserve requirements

China’s central bank is to cut the amount of cash lenders must hold, it was confirmed on Wednesday, the latest move designed to bolster the country’s ailing economy.

Pan Gongsheng, governor of the People’s Bank of China, said the reserve requirement ratio would be trimmed for all banks from 5 February, by 50 basis points to 10%.

Speaking at a press conference, Pan added that the move would free up ¥1trn. It is the third time the PBoC has trimmed the RRR, following two reductions last year.

The central bank also pledged to cut key re-lending and re-discount interest rates by 25bps this week.

Pan also hinted at a possible cut to the benchmark loan prime rate, noting that the RRR reduction would help drive down the rate.

Earlier this week, the bank left both the one-year LPR and five-year LPR unchanged at 3.45% and 4.20% respectively.

China’s economy is struggling, hit hard by the fallout from Beijing’s stringent zero-Covid policy, the crisis engulfing the property sector and slowing global demand.

The authorities are therefore increasingly looking at ways to stimulate the economy.

Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said: “We stand by our call for a one-year LPR cut in the first quarter, though it will depend on the January and February credit data and what it indicates about credit demand outside the policy-sensitive sectors and government bond issuance.

“Governor Pan’s remarks confirm that Chinese policymakers see the role of monetary policy this year as mainly supporting fiscal stimulus intended to keep growth ticking over.

“We see the RRR cut as part of an accommodative monetary policy aimed to facilitate government bond issuance.”

On Tuesday, Beijing said it was considering a £220bn rescue package for Chinese stock markets, which have struggled compared to other benchmarks worldwide.