China slashes reserve requirements for small banks to support virus-hit economy

China's central bank said on Friday it was cutting the amount of cash that mid-sized and small banks must hold as reserves, releasing around 400 billion yuan ($56.38 billion) in liquidity to shore up the economy, which has been badly jolted by the coronavirus crisis.

The People's Bank of China said on its website it will cut the reserve requirement ratio (RRR) for those banks by 100 basis points (bps), in two phases. The first cut of 50 bps will be effective as of April 15, and the second cut of another 50 bps will be effective as of May 15. In addition, the interest rate on financial institutions' excess reserves with the central bank would be reduced to 0.35% from 0.72%, effective April 7, the PBOC said.

The central bank has been easing monetary policy since the virus outbreak escalated in January, cutting the benchmark lending rate and telling banks to offer cheap loans and payment relief to firms that have been hardest hit by the coronavirus outbreak. Economists are forecasting a steep contraction in China's first-quarter gross domestic product, with some expecting a year-year slump of 9% or more - the first such contraction in three decades. ($1 = 7.0945 Chinese yuan renminbi)

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