China Loosens Money Supply on Easing Inflation
By wchung | 05 Feb, 2025

China cut the bank reserve ratio requirement from 20.5% to 20.0% Saturday to signal its intention to loosen the money supply this year. Other moves are expected to follow as Beijing adjusts its monetary policy to reflect both easing inflationary pressures and signs of slowing economic growth.

The latest move by the People’s Bank of China will add about 500 billion yuan ($79.2 bil.) to the nation’s capital markets. Most analysts agree that the reserve ratio requirement will be eased at least two or three more times during the remainder of 2012.

The move is expected to boost primarily major state-run firms who can qualify for bank loans and real estate developers who have suffered intense financial pressures during the past year due to the government’s efforts to cool an overheating housing market which was deemed to be contributing too much to consumer inflation.

But in April the consumer inflation rate fell to 3.4%, well below the government’s 4% goal. At the same time, year-on-year export growth for the month fell to 4.9%, a rate that is only about half of what planners had expected. Some see this as signaling the danger of failing to reach the government’s goal of about 8% GDP growth for 2012.

China’s central bank is seen as having plenty of room to make more cuts to the reserve requirement which is the highest among the world’s major economies, and about twice as high as the comparable rate in the US.