China’s central bank will cut banks’ reserve requirements. Wants to support a cooling economy

China's central bank will cut banks' reserve requirements. Wants to support a cooling economy

The world’s second-largest economy is likely to grow less this year than originally forecast. The World Bank forecasts Chinese GDP growth at around five percent. The Chinese central bank is therefore coming up with a measure to help the economy.

Supporting domestic demand

The People’s Bank of China (PBOC) has announced that it will reduce reserve requirements for commercial banks effective April 25. And by a quarter of a percentage point. He hopes that banks will hold less of the deposits in reserves and use the additional money to finance investments or household consumption spending. This should support domestic aggregate demand.

Coronavirus and war in Ukraine

But analysts say such a move may not be enough to avert China‘s economic slowdown. Indeed, the factors that are now causing the reduction in the growth rate of gross domestic product are quite significant and strong. These include, in particular, the accelerating coronavirus infection, which has necessitated quite severe closures, but also the ongoing war in Ukraine. Both factors threaten the country’s production capacity and Chinese exports. The reduction of the reserve requirement will thus be in fact only a cosmetic change, experts warn.


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