China Cuts Bank Reserve Requirement To Boost Growth

China’s central bank lowered the amount of cash that banks should keep in reserve in a bid to support slowing economic growth amid a weakening currency and tumbling stock markets.

The People’s Bank of China reduced the renminbi deposit reserve requirement ratio by 50 basis points in a surprise move on Monday. The cut will be effective March 1.

The reduction in reserve requirement will help to maintain adequate liquidity in the financial system, guide steady moderate growth of money and credit and boost supply-side structural reforms to improve the monetary and financial environment, the bank said in a statement on its website.

“The PBOC senses that speculative pressure has diminished or that closer monitoring of capital flows has helped slow the flow…today’s decision suggests the PBOC is more relaxed about outflows than a few weeks ago,” Capital Economics economist Mark Williams said.

With the latest reduction, China’s biggest lenders will be faced with a reserve requirement ratio of 17 percent.

At the G-20 meeting that concluded in Shanghai over the weekend, Chinese leaders and top officials maintained that there was still room to support the economy.

PBoC Vice Governor Yi Gang said in an interview to the state news agency Xinhua on Sunday that authorities had full confidence on the yuan’s fundamentals. He also hoped that the yuan exchange rate fluctuation will be based on its fundamentals, rather than short-term expectations.

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