China announced a cut in the foreign exchange reserve requirement ratio for banks on Monday as part of the country's new round of measures to boost support for economic recovery, officials and industry experts said.
The policies will significantly bolster market confidence and shore up domestic demand, helping China's economic growth rebound in the months ahead to about 5 percent in the third and fourth quarters, the experts said.
The People's Bank of China, the nation's central bank, announced that it would reduce the foreign exchange reserve requirement ratio for banks from 8 percent to 6 percent on Sept 15. The onshore and offshore exchange rates of the renminbi against the dollar strengthened after the announcement.
The move came after the renminbi's exchange rate hit a two-year low of 6.94 against the dollar on Monday as monetary tightening in the United States strengthened the greenback.
They added that the move is expected to stabilize the renminbi not only by boosting dollar liquidity in the foreign exchange market but also by delivering a clear signal that the authorities are ready and able to provide substantial support for the Chinese currency and economy.
Liu Guoqiang, deputy governor of the People's Bank of China, said at a news conference on Monday that the country is capable of keeping the renminbi generally stable and vowed to make good use of policy tools to stabilize growth and employment while keeping a lid on inflation.
Liu said that China has seen controllable spillover effects from US tightening, thanks to the country's stable fundamentals and a new upward trend seen in economic activity. The renminbi has risen against major nondollar currencies this year.
On the fiscal front, the country has adequate reserves for the upcoming issuance of more than 500 billion yuan ($72.15 billion) in local government special bonds as a new group of projects become ready for financing, said Yang Yinkai, deputy secretary-general of the National Development and Reform Commission.
The officials' remarks came as the State Council, China's Cabinet, recently announced 19 follow-up measures on top of the policy package for stabilizing the economy that was announced in May.
The new measures include a new quota of more than 300 billion yuan in policy-supported and developmental financial tools, along with a new quota of around 500 billion yuan in local government special bonds expected to be filled before the end of October.
"The second half (of the year) marks a critical period to make up for the loss from the pandemic in the second quarter as well as a golden period for policies to take effect," Yang said. "It's time to introduce follow-up policies to maintain the trend of recovery."
To better implement the follow-up measures, the Ministry of Commerce will take steps to stabilize foreign trade and investment and spur consumption, including accelerating the development of new forms of business and supporting the export of new energy vehicles, said Li Fei, assistant minister of commerce.
Experts said the new policy package offers timely measures to renew the momentum of China's economic recovery, as the Caixin China General Services Purchasing Managers' Index, a private gauge of services activity, remained buoyant with a reading of 55 in August.
Ye Yindan, a researcher at the Bank of China Research Institute, said the new measures will help expand effective investment and speed up infrastructure construction, offsetting the impact of shrinking demand and weakness in the property sector.