China‘s explicit call for banks to reduce the amount of cash they keep as reserves and increase lending has boosted expectations for policy easing, but economists warn that any credit relaxation may not be enough to prevent a deep economic downturn.
Since early 2021, growth in the world’s second-largest economy has slowed as conventional economic engines such as real estate and consumption have stalled. The remaining big economic driver, exports, is now showing signs of exhaustion.
Recent extensive disruptions inactivity caused by China’s largest COVID-19 epidemic since 2020, as well as strong lockdown measures, have tipped the odds in favor of a recession, according to some economists.
Following a meeting on Wednesday, the State Council, or cabinet, stated that monetary policy measures, such as reductions in banks’ reserve requirement ratios (RRRs), should be implemented as soon as possible.
The corresponding announcements of the easing were made two to three days after they were indicted by the State Council in the past two rounds of RRR cutbacks in 2021.
“In the coming days, we expect the PBOC to deliver a 50-basis-point RRR drop and possibly an interest rate cut,” Goldman Sachs stated in a report on Thursday.
Most private analysts now foresee a 50-basis-point reduction in the RRR, freeing up more than 1 trillion yuan ($157 billion) in long-term funds for banks to boost lending.
According to a statement published by the state-run Securities Times, the date to watch is April 15.