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Chinese banks allowed to hold less in reserve from Thursday

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Chinese banks allowed to hold less in reserve from Thursday

chinabanks
chinabanks
Photo: Reuters/Damir Sagol

Today, China’s central bank will reduce the amount of money that banks are required to keep in reserve to back their debts in a move aimed at increasing lending to small businesses.

This will be the third time this year the People’s Bank of China has cut reserve requirement ratios. Although economists predicted a reduction, decreasing the amount by half a percentage point was larger than expected. Nearly $108 billion will be released into Chinese markets, which officials hope will stimulate the economy.

The move comes amid a brewing trade war, with tariffs between Beijing and Washington coming into effect tomorrow. Indeed, recent Chinese economic policies appear to be preparing the economy for a rough ride, balancing increased oversight and stability with maintaining strong economic growth. Reducing reserve requirements is part of this fine-tuning process.

If tensions continue to rise, expect China to stay this course, possibly cutting reserves again this September. Specifically, a trade war will magnify Beijing’s need to boost domestic demand to reduce China’s reliance on exports, potentially slowing global trade. However, barring a significant escalation, experts continue to predict that China’s annual economic growth will hit 6.5%.

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