China 'cuts reserve ratios for five big banks temporarily'

Decorations to celebrate the upcoming Year of the Rooster at Oriental Plaza in Beijing, China. The People's Bank of China has cut the reserve requirement ratio for banks by one percentage point, taking the ratio down to 16 per cent, and it will resto
Decorations to celebrate the upcoming Year of the Rooster at Oriental Plaza in Beijing, China. The People's Bank of China has cut the reserve requirement ratio for banks by one percentage point, taking the ratio down to 16 per cent, and it will restore their RRR to the normal level at an appropriate time after the long Chinese New Year holiday, according to sources.PHOTO: REUTERS

SHANGHAI • China has allowed its five biggest banks to temporarily lower the amount of cash that they must hold as reserves, to ease seasonal liquidity tightness amid huge cash demand heading into the long Chinese New Year holiday, three sources said.

The People's Bank of China (PBOC) has cut the reserve requirement ratio (RRR) for the banks by one percentage point, taking the ratio down to 16 per cent. It will restore their RRR to the normal level at an appropriate time after the holiday, according to sources.

"This is a temporary adjustment, and is mainly in response to the cash withdrawal, tax payment and reserve payment. (The RRR) will go back to the normal rate after the Lunar New Year holiday," one said.

Liquidity always tightens in China ahead of the Chinese New Year holiday, which starts next Friday and ends on Feb 2 this year, as households and companies usually withdraw huge amounts of cash from banks, forcing the central bank to repeatedly inject funds to support the market.

The five biggest lenders are Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Bank of Communications and Agricultural Bank of China.

The five banks did not immediately comment on the matter, and the central bank has yet to respond to a request for comments.

The last time the central bank cut the RRR was Feb 29 last year, lowering the ratio to 17 per cent for all banks.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 21, 2017, with the headline 'China 'cuts reserve ratios for five big banks temporarily''. Print Edition | Subscribe