Beijing – China's central bank on Friday said it will reduce the amount of money banks must hold as reserves by 50 basis points, the second reduction this year aimed at boosting growth in the faltering economy.
The measure takes effect on Friday and was flagged off on Tuesday by PBOC Governor Pan Gongsheng at a press conference, along with key interest rate cuts and measures to support financial markets aimed at reviving economic activity amid persistent inflationary pressures.
The People's Bank of China (PBOC) said it will reduce the reserve requirement ratio (RRR) for all banks, except for those that used a 5% ratio.
“The PBOC has adhered to a supportive monetary policy framework, increased the intensity of monetary policy supervision and control, and improved the precision of monetary policy supervision and control, in order to create a favorable fiscal and monetary environment for China's stable economic growth,” its statement said.
Pan had said such a move would free up about 1 trillion yuan ($142.44 billion) for new lending and leave the door open to further tapering later this year.
But analysts noted businesses and consumers have little desire to take on new debt given the uncertain economic climate.
The downgrade follows a 50-bp cut across banks that took effect on Feb. 5 and the weighted RRR for financial institutions stood at around 6.6% after the cut.
Since then, however, indicators have shown that China's economy is still struggling. It grew more slowly than expected in the second quarter, weighed down by a lingering asset crisis and consumer concerns about job security.
The PBOC also cut borrowing costs for its seven-day reverse repurchase agreements by 20 basis points to 1.50% from 1.70% previously.
The decision to reduce rates aims to “continue to strengthen the adjustment of monetary policy and support stable economic growth”, the bank said.
August economic data largely missed expectations, adding to the urgency for policymakers to release more support. The announcement of the PBOC's policy support on Tuesday raised the expectations of investors and economists that the authorities will soon follow with a financial package to comply with monetary measures.
Depending on the nature of the market deficit later this year, the RRR may be lowered again by 0.25-0.5 percent, Pan said at Tuesday's press conference, in unusually forward-looking remarks.
The government is aiming for economic growth of around 5.0% in 2024, but some investment banks including Goldman Sachs, UBS and Bank of America have recently lowered their growth forecasts for China this year.
The government has earmarked 300 billion yuan in long-term treasury bonds to support a plan aimed at improving infrastructure and boosting consumer goods trade, as businesses and consumers grapple with a downturn in the real estate sector and job insecurity.
Although authorities have allowed local government enterprises to buy unsold homes, progress has been slow, and local government finances are under pressure amid a push for debt relief.
Analysts say only fiscal policies that put money in consumers' pockets through higher pensions and other social benefits can address the economic crisis.
($1 = 7.0203 )
