The People’s Bank of China (PBOC), the country’s central bank, recently announced it would slash the reserve requirement ratios (RRRs) for small and medium-sized banks starting May 15. This measure aims to help support struggling companies due to an economic slowdown in the country.
In a statement, PBOC said the move would release around CNY280 billion ($41.23 billion) in long-term funding. The amount will be used for loans to small private companies.
China’s central bank said it would reduce the RRR for around 1,000 rural commercial banks in counties for up to 8%, which is equal to the RRR for smaller rural credit cooperatives. This move will help reduce funding costs for micro and small enterprises, the PBOC said.
At present, small and medium-sized banks have RRRs ranging from 10% to 11.5%.
The RRR reduction came shortly after US Pres. Donald Trump commented that the talks toward a trade deal with China were progressing “too slowly” as well as Trump’s statement that he would raise tariffs on $200 billion of goods to 25% from 10%.
Trump’s recent tweets overturned the previously calm market mood that had taken advantage from signs of robust growth in China and the United States, and from the comments from Trump and other senior US officials that trade talks between the two largest economies were going well.
Zhou Hao, an analyst at Commerzbank in Singapore, believe the PBOC’s move is a way to calm the market and to offset the impact from the trade talks. He also noted the PBOC’s targeted cut revealed Beijing’s resolve to keep its debt level under control.
The PBOC’s policy move was also a response to China’s decelerating growth resulting from the headwinds generated by the trade tensions, Zhang Ming, a researcher with the Chinese Academy of Social Sciences (CASS), said.
