It could help boost GDP growth amidst the escalating trade tensions.
The People’s Bank of China (PBoC) further cuts its reserve requirement ratio (RRR) by 100 bps, reducing it to 14.5% for large commercial banks and 12.5% for smaller ones starting 15 October. The RRR is now at its lowest since the aftermath of the Great Financial Crisis, which triggered 'aggressive stimulus policies' from the government, according to Fitch Solutions.
Meanwhile, the body decided to sustain its benchmark lending rate at 4.35%.
YTD, total reduction in RRR hit 250 bps. For Fitch Solutions, this could pour in much-needed liquidity for firms amidst the continued crackdown on shadow financing, especially against peer-to-peer lending platforms.
“In the absence of the RRR cuts, the drawdown in liquidity buffers would constrain lending, especially to smaller businesses, which typically have a higher risk profile,” Fitch Solutions noted.
They added that the looser stance by the authorities could push real GDP growth for 2018 amidst pressures sprouting from the trade wars.
“In our view, the economy still faces significant downside pressure over the coming months and the need to support the economy will likely persist amidst a protracted trade conflict with the US and as efforts to unwind the shadow banking sector proceed apace,” the firm noted.
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