BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/44
Bank reserve requirements were also lowered at least 50 basis points (the requirement was lowered 100 basis points in some cases). The reserve requirement of large banks is now 17.5 % and smaller banks 2–3.5 percentage points less.
The latest cuts in interest rates and reserve requirements followed on cuts at the end of August. This month, the PBoC also expanded its trial programme of providing commercial banks with credit secured by debt securities held by banks.
The shaky economic outlook is the main motivation for monetary easing. Even with repeated rounds of easing and Chinese third-quarter GDP growth holding steady at nearly 7 %, price development remains lax. The central bank’s latest moves may also reflect anticipation of an eventual US rate hike, which, when implemented, would make monetary easing more difficult also for China. The bigger problem, however, is that monetary stimulus worsens the debt problem, already the biggest risk to China’s economy.