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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