China’s central bank announced it will cut the amount of cash lenders need to keep in reserve, injecting about 500 billion yuan ($70 billion) into the financial system to keep liquidity ample and support sectors and small companies “severely impacted” by the Covid-19 pandemic.
The People’s Bank of China (PBOC) will lower financial institutions’ reserve requirement ratio (RRR) by 25 basis points on Dec. 5, according to a statement on its website Friday. The weighted average RRR of financial institutions will fall to around 7.8%. It is the second reduction this year — in April the ratio was also cut by 25 basis points, releasing around 530 billion yuan of liquidity into the financial system.
The latest cut is aimed at maintaining reasonably ample liquidity, keeping growth in the total amount of money and credit within a reasonable range, and enhancing support for the real economy, the central bank said in a Q&A on its website accompanying the statement.
The move is also aimed at improving the ability of financial institutions to allocate capital, and will lower their funding costs by around 5.6 billion yuan per year, thus lowering the financing costs of the real economy, the Q&A said.
The PBOC’s announcement was expected after the State Council agreed in an executive meeting on Tuesday that the government will strengthen financial support for the real economy with measures including monetary policy tools such as RRR cuts in a timely and appropriate manner.
Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)
Get our weekly free Must-Read newsletter.
