China will use timely RRR cuts to support economy, cabinet says

BEIJING (Reuters) -China will use timely cuts in banks' reserve requirement ratios (RRR) and other policy tools to support the economy, the cabinet said on Wednesday, as headwinds increase amid outbreaks of COVID-19.

China will step up financial support for the real economy, especially industries and small firms hit by the pandemic, and will lower financing costs, the cabinet, or State Council, said in a statement after a regular meeting.

"In light of changes in the current situation, we will encourage large banks with higher provisions to lower provision ratios in an orderly manner and will use monetary policy tools, including RRR cuts, in a timely way," it said in a statement on the central government's website.

The People's Bank of China (PBOC) usually follows guidance from the cabinet, which oversees the world's second-largest economy and charts the fundamental course of China's policies.

The PBOC last cut the RRR - the amount of cash that banks must hold as reserves - by 50 basis points in December.

A government adviser said on Wednesday that China should cut the RRR and interest rates to support the slowing economy, even as consumer inflation picks up steadily.

Some analysts expect China's central bank to cut the rate on its medium-term lending facility (MLF) as early as Friday.

Authorities will also take measures to boost consumption, barring localities from imposing new restrictions on vehicle purchases, and will step up export tax rebates to stabilise foreign trade, the cabinet said.

More steps will be taken to support purchases of new energy vehicles and consumption in rural areas, and boost consumption in healthcare, elderly care and childcare areas, the cabinet added.