China cuts banks' reserve ratios by 1% as economy slows

China says will cut banks' reserve requirements, taxes, as bad news piles up

China is set to reduce cut banks' reserve requirement ratios (RRRs) amid slower economic growth.

The cut comes amid mounting worries about the health of the world's second-largest economy, which is facing both slowing demand at home and punishing U.S. tariffs on its exports.

The announcement was expected.

Beijing will also step up "countercyclical adjustments" of macro policies and further cut taxes and fees, Li said, largely reiterating previous policy pledges.

"This speedy RRR cut with great intensity fully demonstrates the determination of policymakers to stabilise growth", said Yang Hao, an analyst at Nanjing Securities.

"Given the pressures the economy is facing though, it could still be months before growth stabilizes", noted the analysts at Capital Economics.

The cut in RRR is the first in 2019 by the People's Bank of China (PBOC).

This month, mainland lenders will pay back 822 billion yuan of short-term debt borrowed from each other, and another 390 billion yuan to the PBoC for its medium-term lending facility, according to Bloomberg calculations. The size of the move was on the upper end of market expectations, and the net funds released would be the largest amount in the five cuts since last January.

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"The economy is weak and stimulus needs to arrive quickly", economists at ING said in a note earlier this week.

The cuts will be effective January 15 and January 25, and come ahead of the long Lunar New Year celebrations when cash conditions often get tight.

The latest reduction announced is the first all-inclusive RRR cut since March 2016.

China's economic growth appears to be slowing faster-than-expected amid escalating risks of a synchronized global slowdown, with manufacturing activity contracting in December for the first time in more than two years.

China made its first major monetary policy easing announcement of 2019 on Friday as Beijing prepared to roll up its up sleeves to battle a year that is expected to be filled with economic hardship as well as numerous other challenges at home and overseas, Trend reports referring to South China Morning Post.

Analysts say Beijing will have to keep up a steady stream of stimulus to engineer a sustainable economic turnaround.

In the same survey, an index that indicated bank loan demand in small and micro-enterprises increased to 67.9 in the fourth quarter, up from 67.1 in the third quarter, and it is also higher than the indices for medium-sized and large companies, reflecting small-scale businesses' stronger desire to obtain credit. It also highlighted maintaining market liquidity at a reasonably ample level.

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