People's Bank of China cuts reserve requirement for fifth time in 12 months

Chris Papadopoullos
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The People's Bank of China is trying to manage the economy's growth slowdown (Source: Getty)

China has cut the amount of cash it requires banks to hold in reserve, the country's central bank announced today.

The People's Bank of China (PBOC) cut the reserve ratio by 0.5 per cent in order to "maintain adequate liquidity" and ensure steady growth in money and credit. The move will take effect from tomorrow.

The reserve ratio for big lenders is now 17 per cent. It has been cut five times over the past 12 months. The ratio tells banks how much they need to hold as reserves at the PBOC as a percentage of their customer deposits.

Growth in China slowed to a 25-year low in the final three months of 2015, according to official figures.

"The move is not a total surprise as more monetary easing was anticipated but China likely postponed this while the deprecation pressure was raging during January. However, with some calm restored China saw a window to ease policy," said Allan von Mehren, chief analyst at Danske Bank.

"It is probably not a coincidence that the move comes after the G20 meeting where policymakers discussed the scope for underpinning global growth further. Next in line to ease its policy is set to be the ECB at its meeting on 10 March."

"Given the continued slowdown in the Chinese economy, it was not too surprising to see the central bank step in once again and loosen policy. The reserve requirement still remains at a relatively high level and there is plenty of room for more easing if needed," said Philip Uglow, chief economist at MNI Indicators.

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