RMB Photo: VCG

 China’s central bank on Friday announced that it would cut the reserve requirement ratio (RRR), cash that banks are required to take as reserves, for targeted banks to release roughly $79 billion in additional liquidity to help companies cope with the economic fallout of the coronavirus (COVID-19) epidemic.

From March 16, the RRR for qualified banks will be lowered by between 0.5 percentage points and 1 percentage point, and there will be an extra 1 percentage point cut for joint-stock banks to help extend loans to businesses, the People’s Bank of China (PBC), the country’s central bank, said in a statement. The measures will release a total of 550 billion yuan ($78.67 billion) in long-term liquidity, according to the statement.

The central bank also reiterated that it is adopting a “more flexible” approach to monetary policy to provide “reasonable and sufficient” liquidity and will refrain from taking “broad irrigation” stimulus.

The PBC’s move came after Chinese stocks fell sharply on Friday, tracking a global stock market rout. The benchmark Shanghai Composite Index closed 1.23 percent lower, while the smaller Shenzhen Component Index dropped 1 percent.

“The central bank’s RRR cuts came at a perfect time and are conducive to reviving the economy and boosting the stock market,” Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, said in a research note sent to the Global Times on Friday, adding that the move is “timely rain” at a time when market sentiment is low amid a persistent stock sell-off overseas.

Overnight, US stocks plunged further into bear market territory, while markets in Europe and Asia are also down. In Japan, the Nikkei 225 dropped 6.08 percent on Friday, while the KOSPI in South Korea shed 3.43 percent.

Global Times