liquidity reasonably ample and lowering funding costs for businesses. It said the cut reflected its intention to "make a good combination of macro policies, improve the level of services for the real economy, and keep liquidity reasonably sufficient in the banking system." China's new premier Li Qiang has pledged to push the overall economy to improve while fending off any major risks, state media reported on Friday. The reduction follows a 25-bps cut for all banks in December.
'EFFECTIVE TOOL' Central bank chief Yi Gang told a news conference on March 3 that China's real interest rates are at an appropriate level and cutting banks' reserve requirements will still be an effective tool to support the economy. The PBOC has cut the RRR 15 times since 2018, from nearly 15%, and some analysts have speculated over how much room it has for further reductions. "This will provide a bit of financial relief for China’s large and medium-sized banks," Julian Evans-Pritchard at Capital Economics said in a note. "It may also help nudge down lending rates slightly. But given the wider signs of policy restraint, we doubt it will have a significant and lasting impact on monetary conditions or credit growth." The weighted average RRR for financial institutions stood at around 7.6% after the cut, the central bank said. China's economic activity picked up in the first two months of 2023 as consumption and infrastructure investment drove a recovery from COVID-19 disruptions. But its other traditional growth engines are a big question mark: Exports are expected to remain weak amid a global downturn and the crisis-hit property sector is only slowly beginning to turn the corner. China has set a modest target for economic growth this year of around 5% after it cooled to only 3% last year, one of the weakest showings in nearly half a century. ($1 = 6.8912 Chinese yuan renminbi) (Reporting by Beijing newsroom, Ellen Zhang, Liangping Gao and Kevin Yao; Editing by Kim Coghill and Hugh Lawson)
