China’s central bank has cut an important rate for banks to help the struggling economy. By reducing minimum reserves by 0.5 percentage points, banks will have to retain fewer mandatory balances, according to a statement in Beijing. This means that financial institutions have more money available to issue loans or buy government bonds to finance infrastructure, for example.
In its own words, the central bank wants to stick to its “supportive monetary policy course”. The bank’s governor, Pan Gonsheng, had already announced a whole package of measures a few days ago.
Previously unusual meeting
The rate cut comes one day after a Politburo meeting at which the Communist Party’s inner leadership circle surprisingly put the state of the economy on the agenda. The party typically discusses the economic situation later in the year, so observers saw the meeting as a sign of increased urgency to support the world’s struggling second-largest economy.
Experts had long been warning that China would not be able to achieve its self-imposed growth target of around five percent this year due, among other things, to the real estate crisis and weak domestic consumption. The official report of the Politburo meeting promised more government spending and help for the real estate industry – without giving precise details. The news and rumors about a special issuance of government bonds to boost weak consumption triggered a price rally in China’s financial markets.
