A view of the PBC building in Beijing Photo: VCG

China will cut the amount of cash that banks must hold as reserves known as reserve requirement ratios (RRR) by 50 basis points soon, central bank governor Pan Gongsheng announced at a press conference on Tuesday.

A slew of other significant policy support measures were also announced at the same press conference on Tuesday, which analysts said will further promote stable economic growth.

The RRR cut by 50 basis points will be implemented in the near future prior to the year’s end, injecting approximately 1 trillion yuan ($141.81 billion) worth of long-term liquidity into the financial market, Pan said. Pan added that another cut of 25 to 50 basis points may be implemented by the end of the year, depending on conditions.  

Pan also said the People’s Bank of China, the central bank, will reduce the 7-day repo rate, a key policy rate, by 0.2 percentage points to 1.5 percent to cut the borrowing costs on Chinese businesses.

The central bank's announcement to lower RRR by 50 basis points soon was anticipated by the market, and the magnitude of the cut is significant, market analysts say. This move signals a proactive approach by the financial authorities to further stabilize economic growth and is expected to boost market confidence in achieving faster economic recovery, Zhou Maohua, an economist with China Everbright Bank told the Global Times on Tuesday. 

The combination of RRR cuts and interest rate reduction will help reduce financing costs for the real economy, stimulating consumption and investment activities, Zhou added.

The press conference also announced other major measures to support the real economy. The PBC said that the mortgage rate for existing housing loans will be lowered close to the level of new housing loans, with an expected average reduction of about 0.5 percentage points. 

Additionally, the minimum down payment ratio for buying second homes will be lowered from 25 percent to 15 percent nationwide, unifying the minimum down payment ratios for both first and second homes, a move aimed at bolstering the country’s real estate market which has been undergoing a correction in the past several years.

Pan said the 0.5-percentage point reduction in mortgage rates for existing housing loans is expected to benefit 50 million households and 150 million individuals, reducing household interest expenses by about 150 billion yuan annually. 

Following the news, the Chinese stock market rallied to close higher in the morning trading session, with the Shanghai Composite Index rising by 2.38 percent, the Shenzhen Component Index increasing by 2.58 percent, and the ChiNext Index gaining 3.45  percent.