China's Central Bank Cuts Reserve Requirements for Banks

The Chinese central bank cut the cash that banks must hold in reserves for the second time this year, to support the economy suffering from the rise in coronavirus cases and the continuing decline in real estate activity.

The People's Bank of China said in a statement on Friday that it has cut the reserve requirement ratio for most banks by 25 basis points. The amendment takes effect on Dec. 5, which will free up 500 billion yuan ($70 billion) of liquidity in the economy.

The bank said in a separate statement that the cut was aimed at "maintaining reasonably abundant liquidity" and "increasing support for the real economy," as well as helping banks support industries hit by the Covid pandemic.

The reserve requirement ratio cut, the first since April, was predicted earlier this week when China's cabinet called for more efforts to strengthen the economic recovery. The central bank has cut key interest rates twice this year, the latest cut in August.

The People's Bank of China's move comes after important government measures recently taken to help the economy, including a rescue package for the real estate sector and adjusting some Corona restrictions to reduce the damage to the economy.

However, growth prospects remain challenging. The recovery in the housing market is likely to be slow, while corona cases have risen to a record level, prompting major cities such as Beijing to restrict residents' movements.