China's central bank on November 15 initiated the second phase of a targeted reserve requirement ratio (RRR) cut for some city commercial banks and implemented a medium-term lending facility (MLF) to inject liquidity into the market.
Accordingly, the reduction in the cash that lenders must hold as reserves has unleashed around RMB 40.0 billion (about $5.7 billion) of long-term capital into the market, the People's Bank of China said.
Meanwhile, a total of RMB 200 billion ($28.51 billion) has been pumped into the market via a one-year MLF at the interest rate of 3.25 percent, the central bank said.
Those moves aim to maintain market liquidity at a reasonably ample level to offset peaks of tax payment starting from the middle of the month and other factors, the central bank said.
To boost financing for small private sector firms, the central bank said in September it would cut the RRR by a total of 100 basis points for any city commercial bank that operates only in the provincial-level region where it is based.
The targeted cuts have been implemented in two phases, with the first phase of a 50-basis-point reduction taking effect on October 15.
The two phases of cuts are expected to release capital totaling RMB 100 billion ($14.25 billion), the central bank said.
Analysts from financial institutions have stated that China’s economic development continues to face downward pressure in the fourth quarter of this year, while the central bank’s measures will help ensure ample liquidity among banks.
China’s futures market has been positively affected by the moves. For instance, rebar futures prices at Shanghai Futures Exchange indicated increases of 1.99 percent and 0.59 percent on November 15 and November 18 respectively, and are currently standing at RMB 3,556/mt ($508/mt).