Business Talk Magazine

China promised to help its flagging economy by lowering the volume of cash that its banks must maintain as reserves early next month. The governor of the People’s Bank of China, Pan Gongsheng, announced on Wednesday that the bank would reduce the ratio of reserve requirements (RRR) for every bank by 50 basis points (bps), releasing $139.45 billion (or 1 trillion yuan) to the market.

After two reductions the previous year, this is the first one this year for reserve requirements. Furthermore, the PBOC stated on Wednesday that more monetary policy easing is possible. Banks will be better able to provide loans and encourage expenditure throughout the economy if their reserve needs are decreased.

Furthermore, the governor announced that specifics would be disclosed later on Wednesday or Thursday. The central bank and the National Financial Regulatory Administration have been developing a new policy to encourage loans for premium real estate developers. He did not go into more detail on real estate concerns, but he did note that the majority of local government debt troubles were found in developing areas, which had little bearing on the overall state of the economy and financial system.

Pan recognized the meeting on Monday and the renewed interest in the “capital market.” He promised to cooperate with the central bank to improve financial market conditions. His declarations of the impending reduction in the reserve ratio requirement and the real estate policy paper also represented an uncommon choice. In the final hour of trading, Hong Kong and Chinese stocks continued their upward trend, and following the news, the yields on China’s 10-year government bonds slightly decreased.

In an attempt to stop the prolonged selling, Chinese officials are tightening restrictions on capital outflows, but investors are still dubious of the government’s resolve to support a market whose growth has hit decade lows.

The governor of the PBOC also predicted that this year would see a close in the difference between the cycles of US and Chinese monetary policy. He clarified that such a shift in the outside world is undeniably advantageous for enhancing China’s fiscal operations’ flexibility and increasing their operational space.