China makes surprise interest rate cut to boost bank liquidity and economy | CNN affairs



China’s central bank has cut a surprising amount of money that banks are required to hold in reserve in an effort to keep money flowing through the financial system and support the economy.

The People’s Bank of China (PBOC) said it would lower the reserve requirement ratio (RRR) for almost all banks by 0.25 percentage point as of 27 March.

“[We must] making a good combination of macro policies, better serving the real economy and maintaining reasonable and sufficient liquidity in the banking system,” the PBOC said in a statement.

Late Friday’s move came as a surprise and follows a week of turmoil in global financial markets following the failure of some regional US banks.

As recently as Wednesday, Goldman Sachs analysts said they expected the PBOC to maintain interest rates and the RRR “unchanged” through the first half of 2023.

The central bank had already injected hundreds of billions of yuan into the banking system system since January, mainly through a medium-term credit facility, the analysts said.

The rapid collapse of the two US banks and the troubles at Credit Suisse have fueled fears about the health of the global banking sector.

Regulators on both sides of the Atlantic have taken emergency measures since Sunday to provide liquidity support to troubled lenders and boost confidence in the banking system. On Thursday, a group of America’s largest banks stepped in to bail out First Republic Bank with a $30 billion lifeline.

Earlier this month, Yi Gang, governor of the PBOC, hinted at a news conference that monetary policy will be largely stable this year.

“The current level of real interest rates is relatively appropriate,” he said.

But he also acknowledged that the RRR cut “remains an effective monetary policy tool” to provide long-term liquidity and support the economy.

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