China’s central bank announced on Thursday its intention to reduce a benchmark cash reserve requirement for banks as part of its efforts to strengthen the foundation of the country’s struggling economic recovery. China, the world’s second-largest economy, has faced challenges since abandoning its isolationist zero-Covid policy late the previous year, with decreasing global demand and weak domestic consumption exacerbating an ongoing crisis in the critical property sector.
Rather than employing large-scale stimulus measures to support growth, the ruling Communist Party has opted for a series of more targeted initiatives. The People’s Bank of China (PBOC) revealed its plan to decrease the reserve requirement ratio (RRR) by 0.25 percent, bringing it to approximately 7.4 percent starting from Friday. This marks the third time in a few weeks that the central bank has lowered a key rate.
It’s important to note that the latest RRR reduction does not apply to banks that have already implemented a 5 percent ratio, as specified by the PBOC. The central bank stated that this policy move aims to “strengthen the foundation of economic recovery and maintain reasonable and adequate liquidity.”
The central bank also expressed confidence in China’s current economic recovery progress, noting that “China’s economic operations are sustaining their recovery… and social expectations continue to improve.” They emphasized their commitment to implementing a prudent monetary policy accurately and effectively to drive qualitative improvement and reasonable quantitative growth in the economy.
China is set to release various important economic indicators on Friday, and analysts anticipate a modest improvement compared to previous months. Factory activity in China contracted for the fifth consecutive month in August but showed a slight increase compared to the July figures, according to the National Bureau of Statistics.
The Chinese government has set an economic growth target of around 5 percent for the current year, which would be one of the weakest performances in decades, excluding the pandemic period. The International Monetary Fund predicts China’s GDP to grow by 5.2 percent this year.