May 22, 2022

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China has reduced reserve requirements for banks to support corona-affected companies

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China today announced on Friday that it will reduce the compulsory reserve ratio for banks with the central bank, with the aim of freeing up billions of dollars in liquidity, amid fears of increasing repercussions of the closure due to the Govt. In the country.

The Central Bank of China has said it will reduce the reserve requirement ratio for most banks to 0.25 percent and for small banks by 0.5 percent from April 25, at a time when China has been battling the worst outbreak of the corona virus since its inception. Infectious.

In a statement, the bank indicated that the move would provide about 530 billion yuan ($ 83 billion) in long-term liquidity to be paid into the economy.

The spread of the corona virus in China has led to the imposition of closures in several cities in recent weeks, prompting authorities to adhere to a zero-Govt policy and remove any outposts.

In this situation the factories were forced to suspend their operations, which means that car manufacturers, such as those who warned that production would be disrupted this week, could not work due to the stockpiling of cargo in addition to the announcement of Shanghai’s major ports.

The main purpose of reducing the Reserve Demand Rate is to “guide financial institutions to use reserve funds to support businesses and small and medium enterprises that have been severely affected by the epidemic,” the central bank said in a statement.

Analysts say the move will have a limited impact on the recession.

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“Reducing reserve demand should lower interest rates on debt, which will ease some of the pressure on debt-ridden borrowers,” said Julian Evans-Britzard, an expert on the Chinese economy in the capital economy.

“However, using this measure alone can do little to boost credit growth,” he added.

Qi Zhang, chief economist at Pinpoint Asset Management, said the cut was lower than the market expected, adding that “higher liquidity may help the margins, but it will not address the root of the problem.”

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