Central bank to relax reserve ratio criteria to enhance lending

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The PBoC said on Wednesday that it made a decision to relax evaluation rules for financial institutions eligible for a lower reserve requirement ratio (RRR) from 2019, in a move to boost lending to small and micro enterprises (SMES).

It will also reduce the cost of bank interest payments by 20 billion yuan each year and therefore lower the financing costs of the real economy, according to the statement.

China's central bank acted to release cash into the economy to support growth, cutting the amount of cash lenders must hold as reserves by 1 percentage point.

This RRR standard adjustment has also triggered the market's expectation of further cuts.

Global stock markets sold off on Thursday after a warning from tech giant Apple Inc about slowing China sales, while data this week showed manufacturing activity shrank in December for the first time in more than two years.

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

According to a survey released by the PBOC on Christmas Eve, in the fourth quarter 81.2pc of the participants from the banking sector said the current monetary policy is "appropriate", 4.1 percentage points higher than in the third quarter.

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

China and the United States will hold vice ministerial level trade talks in Beijing on January 7-8, as they seek to end a dispute that is inflicting increasing pain on both economies and roiling global financial markets.

"We will maintain reasonable and sufficient liquidity, maintain reasonable growth in the scale of money and credit and social financing, stabilize macro-leverage, and seek internal and external balances", it said.

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The twisted and conditional liquidity support is part of the central bank's controversial plan to implement "targeted easing" which is aimed at ensuring funds will end up in hands of the right borrowers such as small factory owners.

In addition to monetary policy easing, last week China allocated its local government debt quota "ahead of schedule" to accelerate infrastructure spending.

Chinese monetary policy will be targeted to better serve real economic growth and buffer economic downside risks next year, in order to avoid aggressive credit expansion, according to policy advisers.

Together, the new measures should inject about 800 billion yuan ($116 billion) into the world's second largest economy as growth slows and a trade war with the United States takes its toll.

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