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– China’s central bank announced it would cut the reserve requirement ratio for commercial banks by 50 basis points from February 5.
– Analysts are expecting more supportive measures to follow suit.
China’s central bank has taken steps to calm market panic and restore investor confidence by announcing a cut to the reserve requirement ratio (RRR) for commercial banks. The 50 basis points cut is expected to inject 1 trillion yuan (US$140 billion) of liquidity into the market. However, analysts believe that more measures may be needed to fully stabilize the market. Governor Pan Gongsheng emphasized the central bank’s commitment to countercyclical and intercyclical adjustment of monetary policy tools to support economic recovery.
The move comes as China’s domestic A-shares have underperformed compared to other indices, raising concerns about the country’s economic prospects. The state-run People’s Daily and Economic Daily have both stressed the importance of financial stability for high-quality economic development. President Xi Jinping’s goal of building China into a financial superpower may be threatened if market confidence continues to dwindle.
Premier Li Qiang has already pledged increased support for capital markets, and the China Securities Regulatory Commission has promised to introduce more long-term institutional investors to improve market sentiment. The People’s Bank of China will also slash the relending and rediscount rate for bank loans designated for small firms and agricultural businesses.
While the RRR cut is seen as a helpful move, economists believe that more actions, such as fine-tuning the regulatory environment and potentially interest rate cuts, may be necessary to fully restore confidence. However, the announcement of the RRR cut had a positive impact on the Hang Seng Index in Hong Kong, which rallied by about 4%. The benchmark Shanghai composite index also closed up by 1.8%.
