November 30, 2022

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China allocates $70 billion to banks to support a slowing economy

China allocates $70 billion to banks to support a slowing economy

A man walks past the People’s Bank of China (PBOC) building on July 20, 2022 in Beijing, China.

Jiang Qiming | China News Service | Getty Images

China said on Friday it will cut the amount of liquidity banks must hold as reserves for the second time this year, while providing about 500 billion yuan ($69.8 billion) of long-term liquidity to prop up the ailing economy.

The People’s Bank of China (PBOC) said it will cut the reserve requirement rate for banks by 25 basis points, effective December 5. .

The cut, which followed a 25 basis point cut in April, was widely expected after state media on Wednesday quoted the cabinet as saying China would use timely reserve ratio cuts, along with other monetary policy tools, to preserve liquidity. Reasonably abundant.

The People’s Bank of China has been walking a tightrope on policy, seeking to prop up a slowing economy but keen to avoid deep interest rate cuts that could fuel inflationary pressures and risk flows from China, as the Fed and other central banks raise interest rates to fight inflation.

The world’s second-largest economy suffered a broad-based slowdown in October, and the recent surge in COVID-19 cases has deepened concerns about growth in the fourth quarter of 2022. The economy was already under pressure from falling real estate and weak global demand for Chinese goods.

On Monday, the central bank kept its benchmark lending rates unchanged for the third month in a row, as a weaker yuan and continued capital inflows limited Beijing’s ability to ease monetary conditions to support the economy.

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In recent months, the government has launched a series of policy measures to support growth, focusing on infrastructure spending and limited support for consumers, while easing financial constraints to save the real estate sector.

On Wednesday, the People’s Bank of China issued a notice outlining 16 steps to support the real estate sector, including extending loan repayments, in a major move to ease the liquidity crisis that has plagued the sector since mid-2020.

Chinese cities have imposed lockdowns and other restrictions to rein in a renewed rise in coronavirus cases, clouding the economic outlook and undermining hopes that China will significantly ease its tough stance on the coronavirus anytime soon.

The economy grew just 3% in the first three quarters of this year, well short of the annual target of around 5.5%. Analysts widely expect growth for the full year to be just over 3%.