Keeping Reserve Ratio at Definite Level is a Necessity, Room for Further Cuts Limited: PBOC

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The Chinese central bank’s top official for monetary policy has highlighted the need to keep required reserve ratios (RRR) at a certain level, in the wake of eight cuts over the past two years to spur economic activity.

Sun Guofeng (孙国峰), head of the People’s Bank of China’s (PBOC) monetary policy department said to state media that “reserves play the vital role of maintaining financial stability and withstanding financial risk.”

“For this reason under current conditions where we are pursuing a war for the prevention of financial risk, maintaining the reserve ratio at a definite level is a necessity.

“Looking at both international and domestic circumstances, at present China’s statutory required reserve ratio is at an appropriate level, and in keeping with the needs of macro-economic adjustments there is definite space for further reductions to the RRR, although that space is limited.”

The last cut to the RRR came on 6 January, with PBOC implementing a reduction of 50 basis points.

The cut was an across-the-board reduction, with the RRR for Chi­na’s big banks falling to 12.5%. 

PBOC said it expected the cut to un­leash over 800 bil­lion yuan (USD$114.91 bil­lion) in long-term funds, which will “ef­fec­tively in­crease sta­ble fund sources for fi­nan­cial in­sti­tu­tions to sup­port the real econ­omy and re­duce the cost of funds for fi­nan­cial in­sti­tu­tions to sup­port the real econ­omy.”

The move marked the eighth cut to the RRR since early 2018, amidst ef­forts to prop up flag­ging growth in the Chi­nese econ­omy. 

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