On Tuesday, Pan Gongsheng, the governor of the People’s Bank of China, stated that the central bank will lower the reserve requirement ratio (RRR) by 0.5 percentage points. This move is expected to inject 1 trillion yuan ($142 billion) of long-term liquidity.
Lowering the RRR means that commercial banks will be required to hold less money with the central bank, freeing up more funds for lending and investment in the broader economy. By signaling further reductions, Chinese authorities are underscoring their commitment to stimulating consumption by increasing liquidity in the market.
This decision is part of a broader effort to meet China’s annual growth target of 5% GDP growth. China’s GDP growth rate was 5.3% in the first quarter but dropped to 4.7% in the second quarter. The third quarter is projected to be around 4%.
In addition to monetary policy adjustments, the government is taking steps to revive the country’s struggling real estate market, which is considered a fundamental cause of weak domestic demand. They plan to encourage commercial banks to lower existing mortgage rates to levels closer to those of new loans. This reduction in borrowing costs is expected to help stimulate consumer spending and investment and reduce the pressure for early loan repayments.
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