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China to cut banks' reserve requirement ratios, taxes

China to cut banks' reserve requirement ratios, taxes

The latest support measures come amid mounting worries about the health of the world's second-largest economy, which is facing both slowing demand at home and punishing US tariffs on its exported goods.

The cut in banks' reserve requirement ratios (RRR) is the first in 2019 and the fifth in a year by the People's Bank of China (PBOC) as the economy faces its weakest growth since the global financial crisis and mounting pressure from US tariffs.

The policy move was announced hours after Chinese Premier Li Keqiang told the central bank to make universal cuts of the ratio as part of Beijing's efforts to bolster economic growth having cut the RRR four times a year ago.

The People's Bank of China said the reserve requirement ratio will be lowered by 1.0 percentage point, with the stimulus going into effect later this month.

"With credit growth still slowing and, typically, a six-month lag before any turnaround in credit affects the economy, worries about the outlook for China will persist for several months yet".

The reductions will be made in two stages on January 15 and January 25.

The cuts will be effective January 15 and January 25, and come ahead of the long Lunar New Year celebrations when cash conditions often get tight. Beijing said Friday that talks aimed at ending the dispute would resume next week.




Li said China will strengthen the scale of its counter-cyclical adjustments of macro policies and further cut taxes, while urging banks to take full advantage of tools including reserve ratio cuts, and to support private and small businesses' financing needs.

Further cuts in the RRR had been widely expected this year, especially after a spate of weak data in recent months showed the economy was continuing to lose steam amid increased signs of a pinch from the trade war with the United States. Implementing the cut in two phases ensures "overall banking liquidity stays reasonable and sufficient while balancing internal and external factors to keep the yuan's exchange rate at a reasonable and equilibrium level", it said.

Chinese financial stocks surged Friday as Premier Li Keqiang visited the nation's biggest banks and pledged more support for the economy.

The central bank said this will help expand coverage of its preferential policies and guide banks to better meet the credit demand of small companies.

In addition to monetary policy easing, last week China allocated its local government debt quota "ahead of schedule" to accelerate infrastructure spending.

A further deceleration is seen this year, with some analysts forecasting growth will cool to just over 6 percent.

The government maintains last year's economic growth will be on target at around 6.5 per cent, slowing from 6.9 per cent in 2017.