Posted on 07 Dec 2021
The People's Bank of China (PBOC), China's central bank, announced on December 6 that it will cut the reserve ratio of financial institutions by 0.5 percentage point from December 15 to support the economy and cut financing costs for businesses, especially for medium, small and micro enterprises, it said.
The latest reserve ratio cut will be applicable to all financial institutions except those whose reserve ratio was already at a low of 5%, PBOC said in a notice, adding that the latest blanket cut will free up some Yuan 1.2 trillion ($188.4 billion).
The bank vowed to continue to adopt a firm currency policy, to maintain "reasonable and sufficient liquidity", coordinate the transition of macro policies from this year to the next year, and support medium and small enterprises, 'green' development and "technology innovation", it stated in the post.
In the meantime, the reserve ratio cut will save capital costs of financial institutions by Yuan 15 billion per year, and subsequently, it will lower the financing cost of Chinese enterprises borrowing from these institutions, PBOC stated.
The announcement of the cut came shortly after Chinese premier Li Keqiang's proposal on December 3 that the reserve ratio be cut "when appropriate", Mysteel Global noted.
Monday's announcement gave a fill-up to domestic steel market sentiment, according to market sources.
"We did not expect that the policy to be announced so fast," an industry source based in South China's Guangdong province said. "This will surely ease the cash constraints that the market is likely to suffer at year's end and before the Chinese New Year (on February 1)," he said.
PBOC usually announces such currency measures around this time of year to deal with cash constraints before CNY, Mysteel Global noted. Last January 1, it also lowered the reserve ratio by 0.5 percentage point effective January 6, as reported.
Source:Mysteel Global
