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China to cut bank reserve ratio for third time this year

UNITED STATES, WASHINGTON (OBSERVATORY) — China’s central bank said on Friday it would cut the amount of liquid money banks must hold as reserves for the third time this year, a move that would release 900 billion yuan ($ 126.35 billion) in liquidity to bolster the slowing economy.

Analysts had expected China to announce more measures soon to ease monetary and fiscal policies as the world’s second-largest economy is under growing pressure from an escalation in US tariffs and stagnant domestic demand.

The People’s Bank of China (PBOC) said it would cut the mandatory reserve ratio by 50 basis points for all banks to 13.0 percent, with an additional 100 basis points cut for eligible commercial banks in cities.

The central bank has cut reserve requirements seven times since early 2018. The size of the latest cut came at the upper end of market expectations and the amount of funds to be released would be the largest so far in the current facilitation cycle.

The cut will release 800 billion yuan of liquidity on Sept. 16. The further reduction of 100 billion yuan will be released in two phases, the first on October 15 and November 15.

The latest stimulus to bank lending followed a meeting of the Chinese cabinet on September 4, which pledged to implement broad and targeted cuts in the reserve ratio “in a timely manner”.

Analysts say China’s economic growth is likely to continue to slow in the third quarter after hitting a 30-year low of 6.2 percent in the second quarter.

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