China slashes banks’ reserves by 0.5% to boost economic power.

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China’s central bank, the People’s Bank of China (PBOC), has unexpectedly announced a 0.5% cut in the amount of cash that banks must hold in reserve. The move is aimed at increasing lending to households and businesses and supporting the country’s fragile economic recovery. The cut, the largest since December 2021, will release around 1tn yuan ($154bn) in the form of new loans. Although economists had anticipated a rate cut later in the year, the surprise decision came as China’s stock markets have experienced a shaky start to 2024.

Key Points:

  • The PBOC has cut banks’ minimum reserves by 0.5%, the largest reduction since December 2021, in a bid to increase lending to households and businesses and support China’s economic recovery.
  • The move will allow around 1tn yuan ($154bn) to be released in new loans. Economists had expected a rate cut to occur later in the year.
  • The cut comes as China’s stock markets have experienced a shaky start to 2024, with authorities reportedly considering a larger stimulus package worth around 2tn yuan ($309bn).
  • Beijing appears to be taking a relatively cautious approach in its public statements regarding economic stimulus, stating that it does “not seek short-term growth.”
  • The property sector in China, which makes up between a quarter and a third of GDP, has been struggling to recover from the impacts of the COVID-19 pandemic and a regulatory crackdown in 2020 that affected major developers such as Evergrande and Country Garden.
  • China is expected to set a GDP growth target of 5% at this year’s National People’s Congress in March. The economy grew by 5.2% in 2023, although some economists believe the true growth rate was lower.
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