China’s central bank makes first RRR cut of 2019

The reserve requirement ratio of Chinese banks will be cut by 50 basis points on the 15th January, and a further 50 basis points on the 25th, giving the economy a cash injection ahead of the Chinese New Year celebrations in early February.

Chinese Premier Li Keqiang pledged greater support for liquidity levels shortly before the central bank made its announcement on Friday. Chinese New Year, or Spring Festival, usually sees cash withdrawals spike as households package money into red envelopes to give as gifts.

The cut is forecast to release around Rmb 1.5 trillion ($218 billion), about half of which will help offset local government repayments under the Medium-Term Lending Facility that expire soon.

Analysts are expecting more easing measures in 2019, following four rounds of RRR cuts last year, in order to allow cheaper borrowing and stimulate demand.

“Apart from the usual squeeze at the end of last quarter, interbank interest rates have been stable recently. This move should help push them down,” wrote Julian Evans-Pritchard, senior China economist at Capital Economics. “We suspect the next major…step will be a cut to benchmark lending rates.”