The People’s Bank of China on Wednesday announced a cut in the amount of cash that banks must set aside as reserves. This was the first time in over two years that China’s central bank eased bank reserve requirements.
Several analysts say the move aims to boost the supply of loans and spur growth in China, following worrying indicators pointing to a contraction in manufacturing activity and a weakening in the country’s service sector.
China’s central bank announced it would cut reserve requirements to 19.5 percent for big banks, a reduction of 50 basis points. Estimates say the move could inject up to 3 trillion yuan (US$480 billion) into the Chinese economy, after accounting for the multiplying effect of loans.
The latest move follows a surprise cut in November by the People’s Bank of China to guide rates for lending.
China’s economic growth slowed to 7.4 percent in 2014 – the weakest expansion in 24 years – from 7.7 percent in 2013.
