China’s central bank has hinted at a coming policy change in a paper recommending that the country’s banks further cut reserve requirement ratios (RRR) to ease their burdens and “smooth the interest rate transmission mechanism.”
“While the financial market risks have been effectively released, banks’ capital adequacy and reserves face obvious constraints,” the paper read. The bank added, however, that the RRR should remain high relative to other countries due to China’s status as a developing economy.
The PBOC also made the unexpected move of lending RMB 200 billion ($31 billion) to financial institutions, Reuters reported, suggesting possible liquidity concerns. The decision came hours after US President Donald Trump’s announcement to expand potential tariffs to up to $200 billion worth of Chinese goods.