China frees up $70 billion for banks to underpin slowing economy

Banks ordered to hold less cash to shore up economy

China said it would cut the amount of cash that banks must hold as reserves for the second time this year, releasing about 500 billion yuan ($69.8 billion) in long-term liquidity to prop up the faltering economy.

The People's Bank of China (PBOC) said it would cut the reserve requirement ratio for banks by 25 basis points (bps), effective from Dec. 5. That would lower the weighted average ratio for financial institutions to 7.8%, the central bank said.

The cut, which follows a 25-bp reduction in April, had been widely expected after state media on Wednesday quoted the cabinet as saying China would use timely reserve ratio cuts, alongside other monetary policy tools, to keep liquidity reasonably ample.

The PBOC has been walking a tightrope on policy, seeking to support the slowing economy but eager to avoid big rate cuts that could fuel inflationary pressures and risk outflows from China, as the Federal Reserve and other central banks raise interest rates to fight inflation.

The world's second-largest economy suffered a broad slowdown in October and a recent spike in COVID19 cases has deepened concerns about growth in the last quarter of 2022. The economy was already under pressure from a property downturn and weakening global demand for Chinese goods.

The central bank kept its benchmark lending rates unchanged for a third straight month, as a weaker yuan and persistent capital outflows limited Beijing's ability to ease monetary conditions to support the economy.

The government has in recent months rolled out a flurry of policy measures to support growth, focusing on infrastructure spending and limited support for consumers, while loosening financing curbs to rescue the property sector. The PBOC issued a notice outlining 16 steps to support the property sector, including loan repayment extensions, in a major push to ease a liquidity crunch that has plagued the sector since mid-2020.

Chinese cities have imposed lockdowns and other curbs to rein in a renewed rise in coronavirus cases, darkening the economic outlook and dampening hopes that China would significantly ease its harsh, outlier stance on

COVID anytime soon. The economy grew just 3% in the first three quarters of this year, well below the annual target of around 5.5%. Full-year growth is widely expected by analysts to be just over 3%.

Meanwhile, China's central bank cut the amount of cash that banks must hold in reserve for the second time this year, a move that will inject about 500 billion yuan ($70 billion) into the country´s flagging economy.

The People´s Bank of China (PBOC) said it would lower its reserve requirement ratio by 0.25 percentage points from December 5, bringing the weighted average ratio for financial institutions to around 7.8 percent. The move will help to "stabilise the economy and consolidate a foundation for... upward growth", the PBOC said.

It added that it would "support financing in key areas and weak links, and promote the effective improvement of quality and reasonable growth of the economy". China´s economy has struggled in recent months as authorities have dug in their heels on a zero-Covid policy that has sparked business shutdowns, roiled supply chains and hammered employment.