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China cuts reserve ratios for five top banks temporarily amid cash crunch, say sources

PBOC

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 Lunar New Year holiday, informed 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 source said.

Liquidity always tightens in China ahead of the Lunar New Year holiday, which starts on Jan.27 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 Ltd (ICBC), China Construction Bank Corp (CCB), Bank of China, Bank of Communications Co (BoCom) and Agricultural Bank of China.

The 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, 2016, lowering the ratio to 17 per cent for all banks.

Paul

The author Paul