China’s central bank will today cut the amount of cash reserves that banks must hold in a move designed to
China’s central bank will today cut the amount of cash reserves that banks must hold in a move designed to boost the sluggish economy.
The People’s Bank of China will lower minimum reserves by 50-basis points, thus increasing the amount of money available for banks to lend—a step that is expected to release over $114 billion of credit into the economy to boost business investment and economic activity.
It is the latest monetary policy move by Beijing to arrest flagging economic growth. The trade war with the US, low consumer spending and slow business investment has hit the economy with just 6% growth in the last quarter of 2019—the lowest in 30 years.
Today’s move is the first official response to the record-low growth levels. Of particular concern for Beijing is that domestic demand—particularly for significant growth sectors like private vehicles and apartments—has not grown as hoped to balance ongoing global economic instability for China’s exports.
Sluggish economic growth is likely to be the new norm for China so long as the rising power continues to be locked in a trade war with the US. This increases the likelihood of Beijing pushing for a compromise with the US beyond the mid-January signing of the phase-one trade agreement. Phase two negotiations are expected to start later this year.
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