The Chinese central bank has announced a new measure to boost the country’s ailing economic recovery. This time, the amount of cash banks must hold as reserves is again reduced.
The central bank hopes financial institutions will provide more loans to companies to pull the economy out of the doldrums.
The reduction in the reserve requirement by a quarter of a percentage point takes effect on Friday. Economists had already expected that the central bank would take additional stimulus measures. In March this year, the central bank also reduced the buffer requirement for banks by a quarter of a percentage point.
China is struggling with an economic recovery that is too weak after releasing the coronavirus measures. The country is suffering from a major crisis in the real estate sector, where companies are in danger of collapsing under their large debt burden and low consumer confidence.
The Chinese government has already taken a series of measures last summer to restore the confidence of entrepreneurs and consumers. For example, in August, the central bank lowered the interest rate for one-year loans, which serves as a benchmark for corporate and household loans, for the second time in a short period. That decision was intended to encourage banks to provide more loans at lower rates.
China has also lowered taxes on stock transactions and introduced restrictions on major shareholders’ sale of large shares. The country hopes to restore investor confidence and support share prices.
However, authorities have avoided large-scale support measures due to concerns about the country’s high debt levels. They have also left unchanged the interest rate for five-year loans, the benchmark for most mortgages in the country. Economists see a reduction in interest rates as a means to ease the crisis in the real estate sector.