Chinese authorities stepped up measures to support the renminbi and boost the country’s housing market in an effort to restore confidence in the world’s second-largest economy.
The People’s Bank of China (PBoC) said on Friday it would cut the amount of foreign currency that financial institutions are required to hold in reserve, signalling its resolve to support the renminbi, which has dropped more than 5 per cent against the dollar this year.
Beijing and Shanghai also lowered minimum mortgage interest rates for first-time homebuyers. The moves in China’s two largest cities followed similar cuts this week in Guangzhou and Shenzhen, and came after authorities on Thursday announced cuts to both rates and down payment ratios for mortgages.
Policymakers have picked up the pace of new measures to support China’s currency and economy, particularly in property, which accounts for more than a quarter of economic activity in the country.
But questions over the outlook of cash-strapped developers have subdued demand for Chinese securities and prompted investment banks to downgrade their forecasts for the renminbi’s dollar exchange rate.
[ risis in China’s property market threatens its broader economy ]
The PBoC said it would lower its foreign exchange reserve requirement for banks from 6 per cent to 4 per cent, with effect from September 15, “in order to improve the capacity of financial institutions to use foreign exchange funds”. The renminbi rose as much as 0.2 per cent to Rmb7.2431 (€0.92) against the dollar following the move.
The reserve requirement cut boosts the amount of dollars available in the local market and means commercial banks can afford to cut the interest rates they offer on dollar deposits. That is intended to make it less attractive to convert renminbi into dollars, which has been contributing to pressure on the Chinese currency.
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