Tag Archives: reserve requirement ratio

Soft GDP Number Will Pressage More China Stimulus

THE PEOPLE’S BANK OF CHINA (PBOC)’s announcement that it was cutting banks’ reserve requirement ratio by a quarter of a percentage point from April 25 was well signalled.

It is likely the first in a series of small stimulus measures as authorities seek to counter the slowing of the economy in the face of the country’s worst wave of Covid outbreaks and soaring food, energy and metals commodity prices due to the war in Ukraine.

Premier Li Keqiang has stressed the need to ensure that economic growth picks up in the second quarter. Economic stability is the new watchword.

Monday’s first-quarter preliminary GDP figures are unlikely to make pretty reading. Year on year growth is expected to slow from 4.0% to around 3.5%, and quarter-on-quarter growth from 1.6% to barely 1.0%. The accompanying industrial production and retail sales numbers will also likely be soft.

Beijing will find it difficult to reach its 5.5% growth target this year, but there is no sign yet that it will be jettisoned.

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China Cuts Banks’ Reserve Requirement Ratio

China’s central bank has cut the country’s big banks’ reserve ratio by 50 basis points to 20.5%. The move, effective February 24th, will pump an estimated RMB350 billion-400 billion($56 billion-64 billion) into the economy.

While the People’s Bank of China has been gently expanding credit in recent months in the face of the economy’s slowdown, it had held off reserve ratio requirement cuts since making a first one in November. However, the slowing of money supply growth in January to 12.4% from December’s 13.6% along with a year-on-year 0.5% contraction in exports last month and increasing anxiety about the crisis in the eurozone, has forced the central bank’s hand.

Yet, with inflation staying stubbornly high and the post-2008 global financial crisis stimulus still being wound down, the central bank has to remain careful of easing monetary policy to fast and too far for fear of inflating another bank-lending-driven speculative bubble in assets such as real estate. The local-government debt time-bomb is still ticking quietly in the background, with the threat that poses to the banks that funded it scarcely diminished.

Update: From a PBOC follow-upstatement issued on Sunday, quoting  Jin Qi, assistant to the PBOC governor, speaking at a meeting held on Thursday and Friday:

Both the pressure of growth moderation and that of price rises exist at the same time. The overall tone of the monetary policy will stay prudent…The current international economic situation remains complicated and grim, while China’s economic development is still not balanced, coordinated or sustainable enough.

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