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The central bank of China has announced that it will reduce the amount of cash banks have to prepare and release $ 188 billion in long-term liquidity to support slowing economic growth.
People’s Bank of China (PBOC) Said on that website On December 6th, the bank’s reserve requirement ratio (RRR) will drop by 0.5 percentage points and will be effective from December 15th.
The People’s Bank of China has lowered reserve requirements for the second time this year, announced last week after China’s Prime Minister Li Keqiang flagged the move as a way to strengthen the economy in the face of headwinds.
The Chinese economy has slowed in recent months as it fights a slowdown in manufacturing, debt problems in the real estate market, and a persistent COVID-19 outbreak.
“The reduction in RRR will help ease downward pressure on the economy and smooth the economic growth curve,” Wenbin, senior economist at China Minsheng Bank, told Reuters.
China’s central bank said future 5 basis point cuts would not apply to banks with an existing RRR of 5%. With this reduction, most financial institutions will be able to maintain an average reduction rate of 8.4%.
The previous RRR cut, announced in July, released approximately $ 157 billion worth of liquidity into the Chinese economy.
China’s central bank announced on December 6 that the flow of credit to the money supply and the real economy is “basically in line with nominal GDP growth.”
The best regime think tank, the Chinese Academy of Social Sciences (CASS), said Monday that the Chinese economy is forecast to grow by about 5.3% in 2022, slower than this year’s CASS estimate of 8%.
PBOC’s remarks on not flooding the system with stimulus come in fear that unsustainable levels of debt in China’s needy real estate sector could cause a financial crisis.
China wants to avoid bailouts, but it is unlikely that the situation will get worse enough to chain the problem to that level. Many Chinese real estate companies ran into problems as the administration pushed to lower debt levels.
Pantheon Macroeconomics Craig Botham Chief China Economist Said in a tweet The PBOC’s decision to reduce reserve requirements is a clear sign that things are getting worse.
“In a note to our clients on Friday, we said that RRR will be reduced this week. Don’t be fooled by this” everyday “story. Things are obviously getting worse, “Bozam said.
“As recently as Friday, the PBOC claimed that everything was going well. Obviously not,” he added.
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Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communication, and adult education. The best writing advice he has ever heard is from Roy Peter Clark.
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