On Tuesday the People’s Bank of China announced a 1% cut in commercial banks’ required reserve ratio (RRR), with the aim of providing a capital boost to what might be a year of slowing economic growth.
The cut, effective April 25th, will allow banks to issue more loans by reducing the minimum amount of liquidity they need to hold in reserve. According to the Wall Street Journal, this will inject up to $200 billion into the economy at a time when concerns about China’s growth prospects are beginning to take form.
China is of course facing a rising mountain of economic threats, from trade tensions with Washington through to the struggle to deleverage its financial sector. Yesterday’s official data release showed a strong 6.8% growth for the first quarter of 2018, but a slowdown in fixed asset investment and industrial output.
Many analysts view the move as reinforcement for growth in light of these fears. Market research firm Capital Economics said following the cut announcement: “Today’s RRR cut doesn’t constitute broad monetary easing. But it does signal that – despite the recent strength of the official data – policymakers are starting to balance concerns about economic conditions alongside their longstanding desire to contain credit risks.”