BEIJING – China on Friday cut the amount banks must hold in reserve, a bid to boost its flagging economy by releasing an estimated $142.6 billion in liquidity into the financial market.
The move, announced by China’s central bank, comes a day after top officials including President Xi Jinping met and admitted to “new problems” in the world’s second-largest economy.
Beijing has this week unveiled a raft of measures to boost its ailing economy, which it has targeted to grow five percent this year — an objective analysts say is optimistic given the many headwinds it faces. On Thursday, the ruling Communist Party convened a meeting of its top body, the Politburo, to “analyse and study the current economic situation”.
Beijing on Friday also cut the seven-day reverse repo rate, the short-term interest paid by the central bank on loans from commercial lenders. The central bank announced it cut the key rate from 1.7 percent to 1.5 percent.
Growth in China is being dragged down by a prolonged debt crisis in the property sector, sluggish domestic consumption and high youth unemployment.
“Some new situations and problems have emerged in the current running of the economy,” the Xinhua news agency reported after Thursday’s Politburo meeting. “We must view the current economic situation comprehensively, objectively and calmly, face difficulties squarely, (and) strengthen confidence,” it added.
Politburo members also agreed on the need to “further improve the focus and effectiveness of policy measures” aimed at lifting the economy.
– Cash injection –
The raft of measures unveiled by Beijing, including key rate cuts and policies intended to encourage home purchases, have been welcomed by investors, with stocks in Shanghai and Hong Kong up more than nine percent so far this week.
While more work is needed if leaders are to achieve their five percent growth goal, the recent announcements could mean they are increasingly willing to take bolder actions, analysts say.
“Beijing seems finally determined to roll out its bazooka stimulus in rapid succession,” Ting Lu, Chief China Economist at Nomura, said in a note. “Beijing’s recognition of the severe situation of the economy and lack of success in a piecemeal approach should be valued by markets,” Lu added.
Meanwhile, Bloomberg reported officials were considering pumping more than $140 billion into the country’s large state-run banks, in the first major capital injection of its kind since the 2008 global financial crisis.
The measure-aimed at giving the banks more room to lend to businesses-would be implemented mainly through the issuance of “new special sovereign bonds”, the report said, citing sources familiar with the matter. The details have not yet been finalised, it added. -AFP
