SHANGHAI (Reuters) – China’s central bank made a “timely” move by pumping liquidity into the banking system to respond to mounting pressure in the domestic banking sector and growing risks abroad, a state-owned Chinese newspaper said on Saturday.
The central bank on Friday reduced the amount of cash banks must hold as reserves for the first time this year to support a nascent recovery in the world’s second-largest economy. The reduction in the reserve ratio came earlier than the financial markets had expected.
The Economic Daily said in a front-page article that the move by the People’s Bank of China will ease tensions after demand for funds rose sharply amid the economic recovery. The early release of liquidity will also help prepare for the next phase of demand expansion, it said.
“Currently, the risks in the overseas banking sector are increasing and the external environment is becoming more and more complicated,” the paper said.
“With the domestic banking industry’s debt repayment costs under pressure and the net interest margin continuing to narrow to historic lows, the central bank took a timely step to lower the reserve requirement ratio to release long-term liquidity into the financial system,” it said. .
The Global Times, a state-controlled tabloid, quoted experts as saying the cut reflected the Chinese government’s “responsibility to the world” by not following the United States in raising interest rates but sticking to an independent monetary policy.
China’s leaders have pledged to step up support for the economy, which is gradually recovering from a pandemic-induced slowdown after the sudden lifting of COVID-19 curbs in December.
Global markets this week have been hit by the collapse of US lenders Silicon Valley Bank and Signature Bank and uncertainty over Credit Suisse Group AG, which tapped $54 billion in central bank funding.
(Reporting by Brenda Goh; Editing by William Mallard)