Chinese Central Bank to Cut Reserve Ratio 0.5 Percentage Points in Mid-September

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The People’s Bank of China (PBOC) has unveiled another cut to the reserve ratio for Chinese financial institutions.

On 6 September PBOC announced that it would reduced the required reserve ratio for Chinese financial institutions by 0.5 percentage points on 16 September.

PBOC will also apply a targeted reserve ratio reduction of 1 percentage point to municipal commercial banks that operate within province-level administrative entities, to be implemented in two stages on 15 October and 15 November by means of individual 0.5 percentage point reductions.

The across-the-board reserve ratio cut is expected by PBOC to release approximately 800 billion yuan in funds, while the targeted reserve ratio cut will release approximately 100 billion yuan.

Wang Qing (王青), chief macro-analyst with Golden Credit Rating, said to Financial News that China’s PMI has been in contraction territory for four consecutive months while downwards pressure on the Chinese macro-economy is expanding, necessitating the creation of a policy buffer.

Wang also pointed out that the ongoing reform of the loan prime rate (LPR) has the goal of easing the problem of high-financing costs, and that PBOC’s reserve ratio cut will serve to provide low-cost medium and long-term liquidity to commercial banks, fostering their ability to extend credit.

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