The People’s Bank of China is turning on the stimulus tap.
The central bank has lowered the amount of cash that commercial banks must keep on reserve by half a percentage point to 17%, a change that will take effect on Tuesday.
The PBoC hopes banks will instead pump the money into the Chinese economy. Slashing the “reserve-requirement ratio” is one of the primary tools used by the central bank to boost growth.
Analysts at Capital Economics said the cut could mean that concerns over the rush of money flooding out of China have eased. Experts estimate that hundreds of billions of dollars — perhaps as much as $1 trillion — left the country last year.
Investors have been trying to get at least some of their money out as the value of the yuan plummets. Many see better opportunities abroad, whether it’s in real estate or foreign markets.
Confidence hasn’t been helped by a struggling real estate market and steep drops in Chinese stocks. The Shanghai Composite, which has lost nearly a quarter of its value this year, shed another 2.9% Monday.
China posted its weakest annual economic growth in a quarter century last year. The government is trying to shift the growth engine away from manufacturing and debt-fueled investment toward the services sector and consumer spending.
Beijing has more economic stimulus options should it decide additional measures are needed. Policymakers could increase spending on infrastructure or pump easy credit into the economy.
“We think China still has ammunition to support growth,” said economists at UBS. “That said, the scope and effectiveness of such measures appear to be diminishing.”
— Jesse Jiang and Sophia Yan contributed reporting.