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China’s RRR still relatively high by global standards, can be adjusted further: PBOC official

SHANGHAI/BEIJING (Reuters) – The proportion of money that Chinese banks must set aside as reserves is still relatively high by global standards, and can be adjusted in future to help provide long-term, stable liquidity to the economy, a senior central banker said.

China on Wednesday announced it will cut the reserve requirement ratio (RRR) from Jan. 6 to spur more lending and lower financing costs. It has cut the ratio eight times since early 2018 as it looks to avert a sharper economic slowdown, but growth has still cooled to a near 30-year low.

“From an international perspective, China’s current required reserve ratio (RRR) is still relatively high and has relatively big room to adjust,” Ruan Jianhong, head of the Statistics and Analysis Department at the People’s Bank of China (PBOC), said in an article.

The article was first published in the December edition of China Bond, and released via the magazine’s official Wechat account late on Thursday.

Along with other monetary policy tools, RRR adjustments “can provide long-term, stable liquidity to the real economy,” she said.

The 50 basis point cut announced on New Year’s Day released around 800 billion yuan ($114.91 billion) in funds. It brought the ratio for big banks down to 12.5%, compared with 17% at the start of 2018.

RRRs for China’s commercial banks range between 7.5%-13%. Most deposits in the United States are subject to RRR of 0%or 3%, while the European Central Bank imposes RRRs of 0%-1%, according to the article.

While rolling out a series of growth boosting measures in the last two years, China’s policymakers have pledged they will not embark on massive stimulus schemes like those launched in past downturns, which left a mountain of debt that is still weighing on the financial system.

Echoing that cautious tone, Ruan said that the RRR adjustments don’t represent changes in China’s monetary policy stance, and are aimed at reducing the cost of funding and improving overall liquidity, as the size of China’s monetary base shrank in 2019.

“In recent years, PBOC has been reducing RRRs successively. But this doesn’t mean PBOC is shifting toward a looser monetary policy. Rather, the moves are aimed at supplementing liquidity to the overall economy in an efficient, low-cost manner,” according to the article.

To improve liquidity, RRR adjustments are a more appropriate option than expanding PBOC’s balance sheet, because PBOC, with about $5.42 trillion of assets at the end of 2018, is already the world’s biggest central bank by assets, she said.

Further expanding its balance sheet would hurt credibility of China’s monetary policies, the article said.

(This story corrects reference to “she said” in paragraphs 5 and 11.)

(Reporting by Samuel Shen and Kevin Yao; Editing by Kim Coghill)

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