(Yicai Global) April 14 -- China's cabinet is considering reducing the reserve requirement ratio for banks at a suitable point in the future, after a previous cut in December last year, to boost liquidity and underpin the macroeconomy as economic growth comes under increasing pressure amid widespread Covid-19 outbreaks across the country.

The government will utilize monetary policy tools such as a RRR cut and encourage large banks to lower the provisioning coverage ratio so as to strengthen financial support for individual-run businesses and small and medium-sized firms that have been severely affected by the pandemic, according to an executive meeting of the State Council held yesterday.

In recent weeks, China’s decisionmakers have been signaling a looser monetary policy, fueling market expectations of impending RRR and interest rate cuts.

The probability of RRR and rate cuts in the second quarter is increasing, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International. A narrowing of the ratio of banks’ reservable liabilities will allow them to lend more money, while a lowering of interest rates will stimulate the fund-raising needs of the real economy, which is also a key measure to ease the downturn in the real estate market, he added.

A RRR cut will help stabilize market expectations, increase confidence in market entities, improve aggregate demand and create positive conditions for stabilizing the macroeconomy, said Wen Bin, chief researcher at China Minsheng Bank.

The People’s Bank of China lowered the RRR by 0.5 percentage point on Dec. 15 last year, unleashing an estimated CNY1.2 trillion (USD188 billion) in long-term funds to support the development of the real economy. After the reduction, the weighted average RRR for financial institutions stands at 8.4 percent.

Editors: Dou Shicong, Kim Taylor