Chinese Central Bank to Cut Reserve Requirements

Ibeth Rivero
Ibeth Rivero
on January 01, 2020 | Updated On Jan 01, 2020
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Bank of ChinaThe People's Bank of China stated on Wednesday that it is diminishing the reserve requirements in order to increase liquidity and stimulate the economy.

On its website, the Bank said that they're cutting the reserve requirement ratio by 50 basis points from January 6, which would release around 800 billion yuan into the economy.

This would be the eight-time the bank cuts its reserve requirements since the beginning of 2018. It would help the Chinese economy to face a possible liquidity scarcity due to rising public debt levels and increasing cash demand during the spring festival.

“Looking ahead, there’s still room for more reserve ratio cuts in 2020,” said an analyst at China International Capital Corp, “Should economic growth show more signs of stabilisation and recovery after the cut, it’s likely the central bank will slow down the pace of further reserve ratio cuts,” she added.

The Chinese economy is currently growing at its slowest pace in 30 years, as it grew 6 percent in the third quarter of last year, a fact that many took as a sign of economic deceleration.

Concerning growth levels, the bank highlighted that Chinese growth remains resilient despite the high level of pressure is facing due to Trump's trade war against the big Asian economy. Both countries' negotiation teams recently announcing the signing of phase one of the trade deal, which would put an end to the trade war.

Analysts expect the Chinese government to further stimulus measures in 2020 in order to avoid stronger economic slowdown.

The institution also aims to keep a flexible monetary policy and to keep working to keep loans cheaper, as they expect the economy to keep facing pressures. It also plans to keep the yuan stable.

"The stance of prudent monetary policy has not changed," stated a bank official.

By 9:26 GMT the Chinese Yuan remained almost steady against the US dollar, gaining 0.0374 percent and hitting the 0.1437 level.

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About the Author
Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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