Effective as of April 20, the People’s Bank of China (PBOC) has cut the reserve requirement for banks by one percent in a bid to boost lending and buoy China’s slowing economy. In the first quarter of this year China’s economic growth clocked in at seven percent, marking the lowest quarterly expansion since 2009 and underlining policymakers’ failure to arrest the slide.
Many see the latest RRR cut as a last ditch effort to boost lending
While the headline figure hit the central bank’s seven percent target, less-than-impressive industrial output along with a retail slump leaves due cause for concern, according to state media. Add to that a real and growing problem in the property market, together with ever-mounting piles of debt, and it would appear that the downward pressure on China’s economy is building.
By lowering the reserve requirement ratio (RRR) to 18.5 percent, down from 19.5 previously, sources at China’s central bank will be hoping that lending will step up some. As opposed to RRR cuts in years past, which have been introduced primarily as a means of keeping money in the country, this one is designed with the intention of boosting lending to the real economy.
The cut is the second this year already, and this, together with two interest rate cuts since November, demonstrates that the PBOC is serious about forcing changes to the Chinese economy. However, the measures feed into a wider debate about the usefulness of stimulus in boosting the economy, as opposed to structural reforms, which the government has promised and promised in abundance.
With the situation having shown little positive change recently, many see the latest RRR cut as a last ditch effort to boost lending before the government decides instead to pursue aggressive structural reforms.