Reserve Requirements Cut

The People’s Bank of China cut the reserve requirement ratio by 1 percentage point at the start of 2019. This move was prompted by the decline in growth of the Chinese economy, slowing for the first time since the global financial crisis in 2008. Reserve requirements were at 14.5 percent for large banks, and 12.5 for smaller banks, with the new changes being implemented in two equal stages on January 15 and January 25. Further cuts are expected, as the ongoing trade negotiations with the United States awaiting the March 1 deadline are still affecting the growth of the world’s two largest economies. China has set its GDP growth target to between 6 percent and 6.5 percent for 2019, as 2018 is expected to have seen a growth of 6.6 percent. China’s official manufacturing purchasing manager’s index experienced its first contraction in over two years, as the index rating fell to 49.4, from a rating of 50.0 in November. Weak international demand, coupled with increasing domestic pressure, was expected to be the cause of this contraction, meaning further support measures from the Chinese Government is expected to stimulate growth in this sector. The producer price index rose 0.9 percent in December 2018 year on year, which was lower than economists’ expectations of 1.6 percent. The consumer price index rose 1.9 percent in December, lower than the expected 2.1 percent, and also lower than November’s 2.2 percent. The global economy is closely watching the trade talks occurring between China and the United States, as the first series of talks ahead of the March 1 truce deadline took place between January 7 and 9. The talks were originally planned to be a two-day discussion, however, it was continued on January 9, a promising sign that an agreement between the two countries is coming forward. Chinese Vice Premier Liu He attended the vice ministerial meeting held in Beijing, with the U.S. delegation being led by Deputy U.S. Trade Representative Jeffrey Gerrish.

CA