Lower Bank Reserve Requirement Frees Up $126B For SMB Lending In China

To bolster the country’s economy, the central bank of China said it was reducing the amount of cash that banks need to have as reserves for the third time in 2019. It released $126 billion — or 900 billion yuan — in liquidity, Reuters reported.

“The move shows policymakers are increasingly worried but it’s far from enough to stabilize the economy,” Larry Hu, head of greater China economics at Macquarie Group in Hong Kong, said per the news outlet. “The key constraint is that everything is slowing down — corporates are not willing to invest, because of the trade war, a global slowdown, and weak infrastructure and property sector growth.”

“This did not come as a huge surprise,” Ulrich Leuchtman, head of FX and EM research at Commerzbank in Frankfurt, said in the report. “Of course, this is more easing and we saw in the China data recently that the economic problems are definitely not yet resolved. The uncertainty remains despite the announcement that there will be new trade talks in October, and even with regards to those new talks my impression is that most people don’t expect a lot of success from them in the short or medium term, the optimism has worn off a lot.”

In separate news from June, China’s central bank had announced that it plans to use several tools to keep liquidity in the market and will offer liquidity support to small and medium-sized banks. According to past reports, the People’s Bank of China made the statement during a meeting with the Financial Stability and Development Committee. The lenders and banks and that participated in the meeting also said volatility in the interbank market is calming down.

In December, the People’s Bank of China announced a new policy tool targeted toward boosting lending to small and private firms. The Chinese government said at the time that the country will roll out a targeted medium-term lending facility which it said will provide a “long-term stable source of funding for financial institutions based on the growth of their loans for small and private firms.”