The Chinese government’s central bank lowered the amount of reserves a bank must maintain. The Saturday announcement opened the door for over $63.5 billion dollars in the banking system to be used for loans. The government hopes the injection of money into the economy will head-off the possible risk of a slowdown in the economy.
The central bank lowered the banks’ reserve requirement ratio by 0.50%. The new rate will go into effective on May 18 and is the third such cut the government has implemented in just the last six months. This latest move was made following new data released on Friday that showed the Chinese economy was weakening after going through its slowest three months in nearly three years.
In April, there was a sharp weakening in industrial production along with investment in fixed assets, which is a key driver and it hit the lowest level in over 10 years. The data surprised a number of economists who had expected that last quarter was the bottom of the recent downswing and the latest quarter would show signs of a recovery.
A chief economist from Beijing said the government should have lowered the RRR rate following the end of the last quarter and the latest rate drop in the RRR would not have the same impact it would have had if they had acted sooner.
Last year, in November, the bank announced for the first time in over three years, a cut that lowered the rate to 21.5%. The second reduction was in February that lowered it to 21.0% and this weekend’s cut lowered it to 20.5%.
