PBOC cut banks’ reserve requirement ratio to support economic recovery

 

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China will cut the amount of cash that banks must hold as reserves for the first time this year to help keep liquidity ample and support the economic recovery after the pandemic.

The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points, taking effect from March 27.

After the cut, the weighted average reserve requirement ratio at financial institutions will be around 7.6%, the central bank said. Analysts estimated that the move freed up over 500 billion yuan ($72.6 billion).

The move is aimed at boosting economic growth, keep ample liquidity in the banking system, and enhancing the financial support to the real economy, the PBOC said. 

The RRR cut follows data showing a gradual but uneven recovery in the economy in the first two months of the year and a stronger-than-expected credit expansion.

Analysts estimated that the move freed up over 500 billion yuan ($72.6 billion).

The central bank has promised to make its policy “precise and forceful” this year to support the economy, keeping liquidity reasonably ample and lowering funding costs for businesses.

It said the cut reflected its intention to “make a good combination of macro policies, improve the level of services for the real economy, and keep liquidity reasonably sufficient in the banking system.”