Wednesday 1 January 2020 4:07 pm

China cuts banks’ reserve ratios to spur economy

China’s central bank will cut the amount of cash the country’s lenders have to hold as reserves, releasing over $100bn (£75bn) into the economy in the government’s latest bid to shore up slowing economic growth.

The People’s Bank of China said it will cut banks’ reserve requirement ratio by 0.5 percentage points, bringing the requirement for big banks down to 12.5 per cent. 

Read more: Trump: US to suspend planned tariffs after reaching China trade deal

The move comes during a relative soft patch for world’s second biggest economy. Trade tensions with Donald Trump’s United States have taken a toll on China’s manufacturing and export sectors. 

China’s economic growth slowed to six per cent year-on-year in the third quarter, the weakest pace in almost 30 years.

The government, via the country’s central bank, has lowered key interest rates across the economy in an effort to spur growth.

The People’s Bank has now cut reserve requirement for banks eight times since early 2018 to free up more funds for lending.

Of the latest funds released, small and medium lenders will receive around 120 billion yuan, the unit of the country’s currency the renminbi, the central bank said. It added that the money should be used to fund small, local businesses.

China’s ambitions for its economy are likely to be lower in 2020. The government is expected to set a growth target of six per cent, with the global economy slowing and trade tensions with the US remaining. 

However, the government will be hopeful that at least some of the tariffs the two countries have slapped on the others’ goods will be lifted. 

Read more: IMF says 2019 global growth will be lowest since financial crisis

Yesterday, President Trump said a phase one of trade deal with China would be signed on 15 January at the White House, although there remains some confusion over whether the deal will in fact be signed then.

The deal was struck earlier this month is expected to reduce tariffs and see China buy more American farm goods while addressing some intellectual property issues.

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