China’s central bank lowered the amount of foreign exchange that banks maintain as reserves, in an attempt to combat the weakness of the yuan, after unveiling measures to revive the property market this week.
Also on Friday, major banks in China lowered the interest rates on yuan deposits of various maturities by 10-20 basis points. This is expected to make room for further reduction in lending rates that could boost the property market.
Reports suggested that the government is planning more measures to support the property market that is reeling under debt.
The People’s Bank of China is set to cut the required reserve ratio, or RRR, for foreign exchange deposits by 200 basis points to 4 percent with effect from September 15, the bank said Friday.
The measure is set to release $16.4 billion foreign exchange into the market. This is one of the tools adopted to defend the yuan.
The PBoC had last reduced the forex RRR by a similar 200 basis points in September 2022, in order to curb the weakening of the yuan against the US dollar.
In July, the central bank relaxed its rules allowing companies to borrow more overseas in a bid to support the weakening currency.
On Thursday, the regulators unveiled steps as the property market continued to show signs of meltdown. The minimum mortgage interest rates for first-time homebuyers were lowered and the down payment ratios for mortgages were also reduced.
Regulators also permitted individuals with previous mortgage records to qualify as first-time buyers.
“Most important (and hardest to predict) will be the impact of the moves on wider confidence, especially in the housing market,” economists at Capital Economics said.
“If the latest measures can bring back enough of that demand, then they could kick-off a modest cyclical recovery in homes sales and wider economic activity,” economists added.
Source: Read Full Article