London (CNN Business)China is taking new steps to encourage bank lending and stimulate the country’s flagging economy.
The central bank said Friday it would cut its reserve requirement ratio by 1 percentage point over the next month. The reductions will be made in two stages on January 15 and January 25.
Together, the new measures should inject about 800 billion yuan ($116 billion) into the world’s second largest economy as growth slows and a trade war with the United States takes its toll.
Economists said the move was partly about managing the amount of money in circulation ahead of Chinese New Year, when cash is often exchanged as gifts.
But Capital Economics said the policy change is “also intended to provide support to the economy and will be reinforced with further easing soon.”
“Given the pressures the economy is facing though, it could still be months before growth stabilizes,” noted analysts at the research firm.
After decades of sharp expansion, the Chinese economy is cooling. Growth in 2018 is set to be the weakest since 1990, and 2019 looks even worse.
China is feeling the effects of a darkening trade outlook and government attempts to rein in risky lending after a rapid rise in debt levels.
Fears about China’s economic health have already rattled financial markets. The issue became a major focus for investors this week when Apple (AAPL) warned that it would sell fewer iPhones because of the slowdown.
What remains uncertain is the severity of the slowdown and how far the Chinese government will go in trying to soften its impact. One big wild card is how the trade war between the United States and China will play out in 2019. Beijing said Friday that talks aimed at ending the dispute would resume next week.
Analysts at JPMorgan Chase said that the central bank’s action suggests that “the Chinese government is tilting toward a growth-oriented stance.”
The analysts said the central bank may cut the reserve requirement ratio further, and pump more money into the economy in the form of infrastructure investment and tax cuts.
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