China Central Bank to Release $107 Billion into Economy

It’s been reported that China is opening more than $100 billion to aid its economy, and this is increasing fears of escalating trade war and a slowdown. It’s central bank stated it is set to release about 700 billion yuan ($107 billion) into the financial system by reducing the amount of deposits commercial banks are required to obtain. China plans to cut the requirement by 0.5% and has concerns its economy is weakening faster than expected because of its emerging trade war with the U.S. This cut will encourage banks to lend more cash to businesses and can generate more economic activity. This reduction is to be implemented one day before the U.S. and China plan to impose steep tariffs on tens of billions of dollars of each other’s exports. According to Julian Evans-Pritchard, senior China economist at Capital Economics, a research firm, China’s central bank’s move is “likely to result in looser monetary conditions given signs that policymakers are becoming more concerned about the downside risks to economic activity from slowing credit growth.”

Last year, the Chinese economy increased 6.9% and that momentum continued into the start of this year. However, many economists were skeptical it would last, and now, signs of a slowdown are starting to rise. Analysts from an investment bank Nomura wrote in a research note “We believe the Chinese economy has yet to bottom out, and the situation could worsen before getting better.” However, loosening monetary policy too much could make things even worse. The central bank has to be aware of government efforts to control the huge amounts of debt in China. Wei Yao, an economist at investment bank Societe Generale, says that the “effort to tackle debt is for the long-term good and should not be put off. We see a high pain threshold for Beijing to give up this.”

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