THE central bank will cut the reserve requirement ratio for financial institutions by 0.5 percentage points from Feb. 5, Pan Gongsheng, governor of the People’s Bank of China, said at a press conference in Beijing yesterday.

The move is expected to provide the market with long-term liquidity of some 1 trillion yuan (US$140.85 billion), Pan said.

The central bank will reduce re-lending and re-discount interest rates for the rural sector and small businesses by 0.25 percentage points today, amid efforts to promote a moderate decrease of comprehensive financing costs, the governor added.

The central bank will set up a credit market department, focused on supporting the “five priorities” of technology finance, green finance, inclusive finance, pension finance, and digital finance, Pan said.

The bank will further leverage the dual functions of monetary policy tools in both quantity and structure and strengthen tool innovation to encourage financial institutions to focus on the five priorities.

Pan also told reporters the central bank and the National Financial Regulatory Administration have been working on new policy to support loans for high-quality real estate developers.

He did not elaborate further on real estate issues, but said local government debt problems were mostly in underdeveloped regions, “which has limited impact on the economy and finance in aggregate.”

Also yesterday, the central bank conducted 463 billion yuan of seven-day reverse repos at an interest rate of 1.8%.

The move aims to keep liquidity in the banking system reasonable and ample.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

Zhu Hexin, deputy governor of the People’s Bank of China, said at the same press conference that cross-border capital flow in China is expected to be further stabilized this year.

The country’s current account surplus will remain at a reasonable level and foreign capital inflow activities will increase in 2024, he said.

Zhu, also the head of the State Administration of Foreign Exchange, said the country’s current account surplus in 2023 is expected to reach around US$280 billion and the trade in goods surplus will exceed US$600 billion.

It is widely estimated that the Federal Reserve will make some changes in its monetary policy in 2024, and if so, China will see smaller spillover impact from the Fed policy and improved external financial conditions. China is expected to see a rebound in foreign investment this year, said Zhu.

(Xinhua)