China's central bank, the People's Bank of China (PBoC) has cut the reserve requirement ratio by 0.5% in an attempt to calm investor jitters over China's economy and to ensure ample supply of liquidity in the system; the cut means the largest Chinese banks will have a reserve ratio of 17%. The central bank has in effect injected $100bn of long-term cash into the economy, say experts. This marks the fifth time since October 23rd that the PBoC has cut its ratio, the last being on last February. This latest move came as a surprise to many investors, and will stabilise the Chinese financial system, however, it will not be enough on its own, says Duncan Innes-Ker of the Economist Intelligence Unit, adding that the "surge in loans in January highlighted concerns that bank lending may be spiralling out of control. Ultimately, China's economy cannot grow on credit alone; it needs further reforms to unlock productivity growth".
China's central bank, the People's Bank of China (PBoC) has cut the reserve requirement ratio by 0.5% in an attempt to calm investor jitters over China's economy and to ensure ample supply of liquidity in the system; the cut means the largest Chinese banks will have a reserve ratio of 17%. The central bank has in effect injected $100bn of long-term cash into the economy, say experts. This marks the fifth time since last February that the PBoC has cut its ratio, the last being on October 23rd. This latest move came as a surprise to many investors, and will stabilise the Chinese financial system, however, it will not be enough on its own, says Duncan Innes-Ker of the Economist Intelligence Unit, adding that the "surge in loans in January highlighted concerns that bank lending may be spiralling out of control. Ultimately, China's economy cannot grow on credit alone; it needs further reforms to unlock productivity growth".