China made an unexpected cut in its bank reserve ratio. It is the first time the action has been taken in two years.
Bloomberg writes
Reserve ratios will decline by 50 basis points effective Dec. 5, the People’s Bank of China said in a statement on its website today. Before the announcement, the level was a record 21.5 percent for the biggest lenders, based on previous PBOC statements.
The move is seen as a way to help support what appears to be a flagging economy. China’s PMI has been weak for two months, and there is a fear that factory activity could begin to contract. China has posted a 9% plus GDP growth in most of the quarters of the last five years, only slowing at the depth of the 2008 recession.
Reuters writes that
The cut lowers the reserve ratio for China’s biggest banks to 21 percent from record highs, and frees up funds that could lubricate lending to cash-deprived small firms.
There will be concerns that the action could rekindle inflation which has been muted in the last quarter. Earlier in the year, food prices were up in the double digits in some cases. The price of energy was also affected by the import of crude to support industry and transportation. Many experts believe this demand helped push global oil prices above $90
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