The People’s Bank of China (PBOC) has announced a significant move to boost the country’s economy. PBOC Governor Pan Gongsheng revealed that the bank will be lowering the banks’ reserve requirement ratio (RRR) by 50 basis points. This decision will release approximately 1 trillion yuan ($142 billion) for new lending.
Pan also mentioned that there is a possibility of further reducing the RRR by 0.25 to 0.5 percentage points later in the year, depending on market liquidity conditions.
To provide relief to around 50 million households, commercial banks will soon reduce interest rates on existing mortgages by an average of 0.5 percent, equivalent to about 150 billion yuan ($21 billion). Additionally, minimum down payments for second-home buyers will be lowered from 25 percent to 15 percent.
In addition to these measures, the central bank is cutting the seven-day reverse repo rate by 0.2 percent to reach a rate of 1.5 percent. This move is expected to lower medium-term lending rates by approximately 0.3 percent and loan prime rates and deposit rates by around 0.2 to 0.25 percent.
Furthermore, commercial banks will now be allowed to use up to100 percent of the previously allocated funds for affordable housing loans provided by the central bank, which amounts to about300 billion yuan ($43 billion).
During a briefing session held alongside PBOC’s announcement, China Securities Regulatory Commission (CSRC) Chairman Wu Qing stated that guidance would be issued for medium- and long-term funds entering the market while promoting mergers, acquisitions, and reorganizations.
Despite these measures injecting liquidity into the market, analysts have noted that they do not directly support actual economic activity or address underlying issues within China’s economy.
Experts have expressed mixed reactions towards this stimulus package as some believe it may not be sufficient without aggressive fiscal policies accompanying it.
