(Yicai Global) April 15 -- China’s central bank cut the reserve requirement ratio today, as widely expected, while keeping the rate on its medium-term lending facility loans unchanged for a third straight month, sparking speculation that the loan prime rate fixing on April 20 may also remain untouched.

The People’s Bank of China lowered the RRR, or amount of cash banks must hold in reserves, by 0.25 percentage point effective from April 25 to support the real economy and lower borrowing costs, according to a Xinhua New Agency report.

The move was anticipated after the cabinet this week said there will be timely cuts in the RRR, freeing up more funds for commercial banks to lend, and reductions in other policy tools to support the economy, which is grappling with a resurgence of Covid-19 and restrictions to stop it spreading.

Meanwhile, the PBOC kept the rate on CNY150 billion (USD23.5 billion) of one-year medium-term lending facility loans at 2.85 percent, unchanged from the previous operation. The rate on CNY10 billion of reverse repos stayed at 2.1 percent, it said in a statement earlier today.

A cut in interest rates in the second quarter is still possible, Ming Ming, chief economist at Citic Securities, said before the RRR cut was announced. Ming said he expected a reduction in the RRR to be followed by deposit rate reform and adjustment, as well as an interest rate cut.

Amid ongoing lockdowns and further downward pressure on the economy, tax rebates, fiscal easing and RRR cuts are all expected to increase, according to Wang Qing, chief macroeconomic analyst at Golden Credit Rating. But he cautioned that as the US Federal Reserve is raising rates, any cuts in China could exacerbate capital outflows and trigger a depreciation of the Chinese yuan.

In addition, the duration and the impact of the current wave of Covid-19 are still unknown, and the economic downturn may not be urgent enough to force the central bank to use “big moves” and cut interest rates twice within four months, Wang added.

In January, the PBOC lowered the one-year LPR by 10 basis points to 3.7 percent and the five-year LPR by 5 basis points to 4.6 percent.

Editor: Tom Litting