China to cut key rate to boost economic recovery

September 15, 2023 (MLN): China's central bank announced on Thursday that it would reduce a benchmark ratio for the cash reserves banks are required to hold, aiming to strengthen the foundation of the country's economic recovery, as APP reported.

The world's second-largest economy has faced challenges since abandoning its isolationist zero-Covid policy late last year.

Declining overseas demand and sluggish domestic consumption have compounded issues in the critical property sector.

The ruling Communist Party has thus far refrained from implementing large-scale stimulus measures to boost growth, opting instead for a series of more targeted interventions.

The People's Bank of China (PBOC) disclosed that it would cut the reserve requirement ratio (RRR) by 0.25% to approximately 7.4% starting from Friday.

This marks China's third reduction of a key rate within a few weeks.

It is important to note that this RRR reduction doesn't apply to banks that already maintain a ratio of five%, as stated by the PBOC.

The central bank emphasized that this policy change is aimed at strengthening the basis for economic recovery and ensuring reasonable and ample liquidity.

The central bank stated, "Currently, China's economic activities are sustaining their recovery, and social expectations are on the rise."

They added, "We will implement prudent monetary policy accurately and effectively, promoting qualitative improvements and reasonable quantitative growth in the economy."

China is scheduled to release several significant economic indicators on Friday, which analysts anticipate will show modest improvements compared to previous months.

Factory activity in China contracted for the fifth consecutive month in August but did show slight improvement compared to July, according to the National Bureau of Statistics.

The government has set an economic growth target of approximately 5% for this year, which would represent one of the weakest performances in decades, excluding the pandemic period.

The International Monetary Fund predicts a 5.2% growth in China's GDP for this year.

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