Date
20 October 2017
The People's Bank of China has cut the bank reserve requirement ratio due to weak domestic economic data as well as some external factors. Photo: Bloomberg
The People's Bank of China has cut the bank reserve requirement ratio due to weak domestic economic data as well as some external factors. Photo: Bloomberg

China cuts bank reserve requirement to spur growth

The People’s Bank of China (PBoC) announced on Wednesday a system-wide cut to the reserve requirements of commercial lenders, signaling new concerns about the nation’s slowing economy.

The central bank slashed the reserve requirement ratio (RRR) by 50 basis points, a move that is expected to free up at least 600 billion yuan (US$96 billion) in additional funds for lending. 

Big banks will now be required to hold just 19.5 percent of their deposits in reserve.

The reduction follows a surprise cut to guidance lending rates by the PBoC in November, a move which economists say had negligible impact on spurring productive investment, Reuters noted. 

Recent economic data may have prompted the central bank to undertake the latest easing measure.

The purchasing managers index, a gauge of factory activity, shrank unexpectedly for the first time in nearly two-and-a-half years in January, while the service sector also showed signs of weakening.

China’s economic growth slowed to 7.4 percent in 2014, marking the weakest performance in 24 years.

Economists believe external factors also contributed to the timing of the RRR decision, given deflationary pressures from the slide in energy prices and easing moves by other foreign central banks.

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