China cuts bank reserve ratio as growth falters By Reuters

BEIJING (Reuters) – China’s central bank said on Friday it would cut the amount of cash banks must hold as reserves by 50 basis points, the second cut this year aimed at supporting weak economic growth.

The measure takes effect on Friday and was announced by PBOC Governor Pan Gongsheng at a news conference on Tuesday, alongside cuts in several key interest rates and measures to support capital markets aimed at boosting economic activity amid deflationary pressures persistent.

The People’s Bank of China (PBOC) said it will lower the reserve requirement ratio (RRR) for all banks except those that have implemented a 5% reserve ratio.

Pan said such a move would free up about 1 trillion yuan ($142.44 billion) for new borrowing and left the door open to further tapering later this year.

But analysts noted that businesses and consumers have little appetite to take on debt given the uncertain economic outlook.

The cut follows a 50 basis point cut for all banks that took effect on February 5, and the weighted average RRR for financial institutions was around 6.6% after the cut.

Since then, however, indicators have shown that China’s economy is still struggling. It grew much more slowly than expected in the second quarter, weighed down by a prolonged housing crisis and consumer concerns about job security.

Economic data in August broadly missed expectations, adding urgency for policymakers to provide more support. The PBOC’s supportive policy announcement on Tuesday raised expectations among investors and economists that the authorities will soon follow with a fiscal package to complement the monetary measures.

Depending on the market liquidity situation at the end of this year, the RRR may be further reduced by 0.25-0.5 percentage points, Pan said at a news conference on Tuesday in rare forward-looking remarks.

The government is targeting economic growth of about 5.0 percent for 2024, but some investment banks, including Goldman Sachs, UBS and Bank of America, recently cut their forecasts for China’s growth rate this year.

The government has allocated 300 billion yuan in ultra-long-term treasury bonds to support a program aimed at upgrading equipment and encouraging trade in consumer goods, as businesses and consumers grapple with a slump in the housing sector and precariousness workplace.

Although authorities have allowed local state-owned enterprises to purchase unsold housing, progress has been slow and local government finances are under pressure amid a drive to reduce debt.

Analysts say only fiscal policies that put money in consumers’ pockets through higher pensions and other social benefits can solve economic headaches.

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