Chinese Yuan Mixed As PBoC Cuts RRR to Help Small Business

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The Chinese yuan is mixed on Monday after the People’s Bank of China (PBoC) announced that it would be lowering the amount small banks are required to hold in reserves. The central bank has been executing various monetary policy measures to ensure China can resuscitate the economy in the fallout of the coronavirus pandemic. Experts say the PBoC will take even more action in the coming weeks.

The PBoC announced on its website that it is decreasing the reserve requirement ratio (RRR) by 100 basis points in two phases to 6%. The first cut will take place on April 15 and the other will happen on May 15. The efforts will inject more than $56 billion in liquidity for approximately 4,000 small- and mid-sized banks.

This is the second time in less than a month that the central bank decreased the RRR.

Central bank officials confirmed in a separate announcement that it is cutting the interest rate on financial institutions’ excess reserves with the PBoC. Effective April 7, the rate will be lowered from 0.72% to 0.35%.

Last week, Beijing pumped $7.1 billion of liquidity into the financial system by cutting the rate on its seven-day reverse repurchasing agreement by 20 basis points. The rate went from 2.4% to 2.2%.

According to Tianyancha, a commercial database that compiles public records, about 460,000 Chinese firms shut down in the first quarter because of the COVID-19 outbreak. Between January and March, registration of new businesses declined 29% from the same time a year ago. The government has been encouraging banks to lend more to entrepreneurs, even if they may not meet all the underwriting standards, by expanding access to credit markets. Financial institutions have also lowered interest rates, increased lending amounts, and established new promotions to get more people and businesses to borrow.

The EUR/CNY currency pair tumbled 0.11% to 7.6558, from an opening of 7.6643, at 19:29 GMT on Monday. The CAD/CNY rose 0.24% to 5.0227, from an opening of 5.0106.

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