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The Chinese central bank announced on Sunday that it will reduce by 50 basis points the liquidity that some banks must hold as reserves, thus freeing up $ 108 billion of cash, to accelerate the pace of debt-to-equity conversions and companies.
The reduction in reserves, the third by the central bank this year, had been widely anticipated by investors, because of concerns about the liquidity of the market and of a possible economic slowdown of a trade dispute with the states. -United.
But the 700 billion yuan ($ 107.65 billion) in cash that the central bank says will result from the reduction in reserves has been larger than expected.
The State Council announced on Wednesday that monetary policy instruments, including targeted reductions in bank reserve requirements, will be deployed to strengthen small business credit flows and keep economic growth within a reasonable range.
Economists do not rule out further cuts in reserve requirements for the rest of the year, as borrowing costs increase due to the tightening of Beijing's financial system, a campaign that is under way. in its third year, while uncertainty persists about Sino-US trade relations.
The People's Bank of China (PBOC) announced on Sunday that the latest targeted reduction in reserve requirement ratios (RRRs) for some banks – currently 16 percent for large banks and 14 percent for small banks – will come into effect on July 5.
The People's Bank of China (BDC) has announced that this reduction would generate approximately 500 billion yuan (77 billion dollars) for the five major public banks and 12 national joint-stock commercial banks. Lenders are encouraged to use the money to perform debt conversions against equity investments.
Since the end of 2016, Cypriot policymakers are pushing for debt swaps for equity investments to ease the pressure on companies struggling against their debts.
The country's leading government-controlled banks have been quick to sign agreements with state-owned companies to ease the debt burden and give them time to turn their businesses around and improve their solvency.
The latest RRR cuts will also release about 200 billion yuan of financing for small and medium-sized banks to increase lending to small businesses short of credit, the People's Bank of China said.
The combined liquidity injection of 700 billion yuan exceeded market expectations of 400 billion yuan. As part of the latest targeted reduction of the ACB in April, 400 billion yuan of net liquidity was released.
"The intensity of the movement has exceeded market expectations," said Wang Jun, chief economist based in Beijing at Zhongyuan Bank.
"This measure will help support the real economy and stabilize the financial markets, we have seen a rise in defaults and tensions on the financing of small businesses, as well as a sharp adjustment of the capital market .
But the latest reduction in reserves signals a "policy adjustment", not a policy reversal, Wang said.
The central bank said Sunday that it will keep the monetary policy cautious and neutral. Sunday's announcement followed the worst weekly loss on the Chinese stock market since early February, fears of a large-scale trade war with the United States having weighed.
The Chinese yuan also fell on Friday to its lows against the dollar in more than five months, although it remained firm against a basket of currencies trading partners, and a sharp depreciation is not in the cards.
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