China Cuts Reserve Ratio for Banks, $70 bn Injected in Economy

China's central bank cut the amount of cash lenders must hold in reserve for the second time this year, ramping up support for an economy racked by surging Covid cases and a continued property downturn.

The People's Bank of China (PBOC) reduced the reserve requirement ratio (RRR) for most banks by 25 basis points, it said in a statement on Friday. The adjustment takes effect on December 5 and will inject $70 billion of liquidity into the economy.

The cut is aimed at "keeping liquidity reasonably ample" and "increasing the support for the real economy," as well as helping banks support industries damaged by the Covid pandemic, the PBOC said in a separate statement.

The RRR reduction - the first since April - was foreshadowed earlier this week by the State Council, China's Cabinet, which called for more efforts to solidify the economic recovery. The central bank has also cut its key interest rates twice this year, with the most recent move in August. The RRR is a way to free up cheap long-term liquidity for banks, allowing them to extend more loans to businesses and consumers.

The PBOC's move comes after significant government actions recently to help the economy, including a rescue package for the property sector and an adjustment of some Covid curbs to reduce the damage to the economy.