China Central Bank Takes More Steps to Boost Flagging Economy

China's central bank took more steps to boost its flagging economy, after a slew of downbeat indicators recently sparked concerns that Beijing's official annual growth target of around 5% might be out of reach.

China will cut its reserve requirement ratio, or the amount of cash banks must hold as reserve, by 50 basis points, Pan Gongsheng, governor of the People's Bank of China, said in a press briefing on Tuesday.

He added the move is expected to unleash 1 trillion yuan, the equivalent of $142 billion, worth of liquidity into the financial system and said China may deliver another RRR cut of 25-50 basis points later this year.

The seven-day reverse repurchase rate, which is China's main policy rate, will be trimmed to 1.5% from 1.7%, in a move that Pan said will guide down borrowing costs of the PBOC's medium-term lending facility by 30 basis points.

China will also cut rates on existing mortgage loans and Pan expects mortgages rates to on average fall by roughly 50 basis points. In addition, the minimum downpayment for second homes will be cut to 15% from 25%, Pan told reporters.

Many China watchers were expecting the PBOC announce more measures after a run of downbeat data, saying the U.S. Federal Reserve's large rate cut will provide China more room to ease policy.

Consumer confidence sank in July while inflation remains near zero. Business surveys in August recorded sinking profits and Chinese manufacturers' inventories are swelling. Car sales have been dropping and while retail sales growth has slowed sharply.

Home prices in August posted their steepest decline in nine years, despite government efforts to stem the property crisis by lowering interest rates, relaxing home-purchase restrictions and pledging to buy unsold homes.

The yields on 10-year Chinese government bonds have plumbed new lows, indicating investors are souring on the economy's prospects.

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(END) Dow Jones Newswires

September 23, 2024 22:17 ET (02:17 GMT)

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