On September 24, the People’s Bank of China (PBOC) announced significant economic stimulus measures to revive the country’s economy. This move comes in response to a property slump and weakened consumer confidence caused by the Covid-19 pandemic.
PBOC Governor Pan Gongsheng revealed the decision to cut borrowing costs and inject more liquidity into the financial system. The key measures include reducing the reserve requirement ratio (RRR) for banks to 0.5%, the lowest level since 2018. This action is expected to release 1 trillion yuan (approximately $142.2 billion) into the economy, according to Bloomberg.
Pan Gongsheng also hinted at further RRR cuts this year, particularly targeting small banks, which could see reductions of up to 0.5%. Additionally, deposit interest rates will be slashed by 0.2% to 0.25%. This marks the first time since 2015 that China has simultaneously cut interest rates and the RRR.
In a move to bolster the property market, China lifted restrictions on second-home purchases and lowered the capital requirement for subsequent properties to 15%. Pan estimated that these mortgage adjustments could benefit 50 million households, reducing interest costs by 150 billion yuan annually and boosting consumer spending.
Furthermore, Pan Gongsheng announced liquidity support of at least 800 billion yuan ($113 billion) for China’s stock market. Officials are also exploring the creation of a market stabilization fund to further strengthen the financial sector.
China’s announcement triggered a surge in its stock and bond markets, pushing both to their highest levels in nearly three years. The yuan also reached a 16-month high against the U.S. dollar.
While the stimulus package is seen as a major step, experts caution that additional measures are necessary to sustain growth. “More needs to be done to help consolidate growth in the fourth quarter,” said Ken Wong, an economist at Eastspring Investments Hong Kong.
Following news of China’s economic stimulus package, Bitcoin price also had its first positive reaction when it increased by 0.46% in the past day.
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