Chinese Central Bank Injects More Liquidity To Stimulate Slowing Economy

A number of new measures are being taken by China so that there is more bank-lending which can further stimulate its slowing economy.

In the latest measure in a spate of number of policy changes that the Chinese government has been taking to support economic growth, the amount of money that Chinese banks require to hold in reserve was slashed by the People’s Bank of China.

According to an announcement by the Chinese central bank on Friday, starting next month in two stages on January 15 and January 25, 1 percentage point off the reserve requirement ratio would be cut by it in

After the reduction of the ratio, it is being expected that the second largest economy of the world would get an additional 800 billion yuan ($116 billion) injected into it. The Chinese economy is experiencing a slowdown in growth partly because of the ongoing trade war between China and the United States which is having an impact on trade and domestic consumption.

According to economists, this move by the central bank was partly aimed to manage the amount of money in circulation in the country before the Chinese New Year which has a tradition of giving out cash as gifts.

The policy change is “also intended to provide support to the economy and will be reinforced with further easing soon”, said Capital Economics.

According to analysts at Macquarie Capital, the lowering of rates by the Chinese government reflects that the efforts of the authorities intended to support the economy not have shifted to the “second level” and this should be interpreted by investors that the government would come out with more such stimulus in the near future,

The Chinese economy is slowing down following decades of significant growth. According to estimates, the growth in the Chinese economy for 2018 would be the lowest since 1990 and the predictions for 2019 are even lower.

The Chinese economy has been impacted by the hovering cloud over trade and the efforts by the Chinese government to bring down the amount of risky debts following some steep growth in debt levels.

“Given the pressures the economy is facing though, it could still be months before growth stabilizes,” noted the analysts at Capital Economics.

The financial markets have already been rattled by fears about China’s economic health. This was felt the world over this week after a 10 per cent drop in the share value of Apple in New York over the first ever warning of revenue and profit in the first quarter of next by the iPhone maker because of slowing demand for its phones in China. This drop caused a global sell out of tech stocks with investors seeking safer havens in bonds and currencies.

However there is some degree of uncertainty about the severity of the Chinese economic slowdown and the range of efforts that the Chinese government would make to cushion the impact. One of the biggest uncertainties is the future of the trade war between China and the United States even as both the countries get ready to start fresh trade negotiations this month.

The central bank’s action suggests that “the Chinese government is tilting toward a growth-oriented stance,” said analysts at JPMorgan Chase.

(Adapted from CNN.com)

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Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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