London (CNN Business)China is
taking new steps to encourage bank lending and stimulate the country's flagging
economy.
The People's Bank of China is slashing the
amount of money that banks are required to hold in reserve, the latest in a
series of policy changes the government has taken to support growth.
The central bank said Friday it would cut
its reserve requirement ratio by 1 percentage point over the next month. The reductions
will be made in two stages on January 15 and January 25.
Together, the new measures should inject
about 800 billion yuan ($116 billion) into the world's second largest economy
as growth slows and a trade war with the United States takes its toll.
Economists said the move was partly about
managing the amount of money in circulation ahead of Chinese New Year, when
cash is often exchanged as gifts.
But Capital Economics said the policy
change is "also intended to provide support to the economy and will be
reinforced with further easing soon."
Stimulus
efforts move up a gear
Analysts at Macquarie Capital said that
the rate cut shows government efforts to support the economy have now moved to
the "second level" and should signal to investors that more stimulus
is in the pipeline.
After decades of sharp expansion, the
Chinese economy is cooling. Growth in 2018 is set to be the weakest since 1990,
and 2019 looks even worse.
China is feeling the effects of a
darkening trade outlook and government attempts to rein in risky lending after
a rapid rise in debt levels.
"Given the pressures the economy is
facing though, it could still be months before growth stabilizes," noted
the analysts at Capital Economics.
Fears about China's economic health have
already rattled financial markets. The issue became a major focus
for investors this week when Apple (AAPL)
warned that it would sell fewer iPhones because of the slowdown.
What remains uncertain is the severity of
the slowdown and how far the Chinese government will go in trying to soften its
impact. One big wild card is how the trade war between the United States and
China will play out in 2019. Beijing said Friday that talks aimed at ending the
dispute would resume next week.
Analysts at JPMorgan Chase said that the
central bank's action suggests that "the Chinese government is tilting
toward a growth-oriented stance."
The analysts said the central bank may cut
the reserve requirement ratio further, and pump more money into the economy in
the form of infrastructure investment and tax cuts.
Source: CNN