Chinese banks allowed to hold less in reserve from Thursday

Chinese banks allowed to hold less in reserve from Thursday

Today, China’s central bank will reduce the amount of money that banks are required to keep in reserve to back

chinabanks

Photo: Reuters/Damir Sagol

Today, China’s central bank will reduce the amount of money that banks are required to keep in reserve to back their debts in a move aimed at increasing lending to small businesses.

This will be the third time this year the People’s Bank of China has cut reserve requirement ratios. Although economists predicted a reduction, decreasing the amount by half a percentage point was larger than expected. Nearly $108 billion will be released into Chinese markets, which officials hope will stimulate the economy.

The move comes amid a brewing trade war, with tariffs between Beijing and Washington coming into effect tomorrow. Indeed, recent Chinese economic policies appear to be preparing the economy for a rough ride, balancing increased oversight and stability with maintaining strong economic growth. Reducing reserve requirements is part of this fine-tuning process.

If tensions continue to rise, expect China to stay this course, possibly cutting reserves again this September. Specifically, a trade war will magnify Beijing’s need to boost domestic demand to reduce China’s reliance on exports, potentially slowing global trade. However, barring a significant escalation, experts continue to predict that China’s annual economic growth will hit 6.5%.

Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.