China cuts bank reserve ratio to support economy

BEIJING – China’s central bank said last week it would cut a benchmark ratio for the amount of cash banks must hold in reserve to “consolidate the foundation” of the country’s sputtering economic recovery.

The world’s second-largest economy has struggled since ditching its isolationist zero-COVID policy late last year, with declining overseas demand and low domestic consumption adding to a slow-motion crisis in the crucial property sector.

The ruling Communist Party has so far refrained from using large-scale stimulus to prop up growth, instead opting for a raft of more targeted measures.

The People’s Bank of China (PBOC) said Thursday it would slash the reserve requirement ratio (RRR) by 0.25 percent to around 7.4 percent from Friday.

China last cut the RRR in March and this latest move is the third time the central bank has reduced a key rate in the space of a few weeks.

The latest RRR cut excludes banks that have already implemented a ratio of five percent, the PBOC said.

It added that the policy would “consolidate the foundation of economic recovery and maintain reasonable and sufficient liquidity”.

“At present, China’s economic operations are sustaining their recovery... and social expectations continue to improve,” the central bank said.

“We will implement prudent monetary policy accurately and effectively... and push the economy to achieve effective qualitative improvement and reasonable quantitative growth.”

Factory activity in China shrank for a fifth straight month in August but did tick up compared to the July reading, according to the National Bureau of Statistics.

The government has set an economic growth target of around five percent for this year, which would represent one of its worst performances in decades excluding the period of the pandemic.

The International Monetary Fund forecasts 5.2 percent growth in China’s GDP this year.