World Economy

China Cuts Banks’ Reserve Ratio to Spur Growth

China Cuts Banks’ Reserve Ratio to Spur GrowthChina Cuts Banks’ Reserve Ratio to Spur Growth

China’s central bank stepped up efforts to cushion its economic slowdown amid plunging stock prices and a weakening currency, cutting the amount of cash the nation’s lenders must lock away.

The required reserve ratio will drop by 0.5 percentage points effective March 1, the People’s Bank of China said on its website Monday. That will take the level to 17 percent for the biggest banks, still one of the highest such ratios in the world. The move marks a return to more traditional easing after the central bank indicated in recent weeks it would spur growth by guiding interbank markets lower and injecting liquidity through open-market operations, Bloomberg reported.  

Governor Zhou Xiaochuan highlighted scope for further action ahead of a Group of 20 meeting in Shanghai last week, saying China had “multiple policy instruments” to address growth risks. Finance Minister Lou Jiwei said at the event that China will expand its fiscal deficit to support structural reforms to the economy, which slowed to a 6.9% growth pace last year, the weakest since 1990.

“Officials are making good on their promise at the G-20 to pull all policy levers to stabilize growth,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. The reduction “suggests that officials believe that they have succeeded in reining in capital outflows, after deferring explicit monetary easing in January over worries this could accelerate outflows.”

The action will inject about 685 billion yuan ($105 billion) into the financial system, Bloomberg Intelligence estimated.