China's Central Bank to Cut Reserve Ratio from Jan 6

The People's Bank of China (PBOC), China's central bank, announced on January 1 that it will shave the reserve requirement ratio of financial institutions by 0.5 percentage point from January 6, in order to support the development of the real economy and to lower financing costs for Chinese enterprises.

The latest blanket reserve ratio cut will free up over Yuan 800 billion ($114.9 billion) and thus secure stable and sufficient cash flow liquidity, state media Xinhua News reported.

PBOC always unveils such currency measures around this time of year to deal with cash constraints before Chinese New Year, Mysteel Global notes. Last January 4, the central bank also lowered the reserve ratio by a total of 1 percentage point in two phases on January 15 and 25 2019 respectively, as reported.

"The reserve ratio cut was announced on the very first day of 2020. It is clear that the central bank is firmly following the order of Premier Li Keqiang to apply various measures to lower enterprises' financing cost and to strengthen countercyclical adjustment," commented a Shanghai-based economist.

During a visit to Chengdu in Southwest China's Sichuan province on December 23, the Chinese premier had commented that Beijing will study adopting various measures such as blanket and specially-targeted reserve ratio cuts, refinancing and rediscount measures, to lower the actual interest rate and financing cost, and to resolve the difficulty in financing that small-sized Chinese enterprises face.

Chinese steel market participants have welcomed the central bank's cash injection to the market, believing that freeing-up money supply will boost steel market demand, Mysteel Global learnt.

"The money the measure unlocks will be flowing into main downstream consumption areas such as infrastructure and real estate, which will effectively support steel demand," a ferrous analyst from Shanghai-based Dalu Futures Co commented.

Unlike the previous rounds of reserve ratio cuts that targeted mainly infrastructure, the latest blanket cut will entice new cash into the property market, the most important consumption area for steel products, she maintained.

The article has been published under article exchange agreement between Mysteel Global and SteelMint.