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China’s Central Bank gets tested over economic slowdown

The marked economic slowdown of China in the second half of the year is testing the central bank’s policy mettle and has divided economists over whether more aggressive action would be required to avoid a deeper downturn. The People’s Bank of China is juggling multiple economic risks and pulling policy in different directions. Growth is heading for lows which were not seen since 1990. If the Covid-19 pandemic year is excluded, factory-gate inflation would have been soaring, and the currency would be rallying on the back of record trade surpluses, according to experts who follow Chinese economic growth. On top of that, the United States and Europe’s imminent scaling back of pandemic stimulus is squeezing China’s room to loosen policy. Since the surprise cut in the reserve requirement ratio in July, the PBOC had refrained from any significant easing measures. It applied opted approach instead for a targeted approach by providing support to green sectors and small businesses and relaxing some restrictions on mortgage lending and property financing. China’s cabinet, the State Council, mentioned that the PBOC and regulators should use various financial tools to boost the liquidity of smaller businesses. Premier Li Keqiang had also echoed those sentiments stating the economy faces the “new downward pressure” and insisted on focusing on supporting small firms.

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