PBOC Schedules Targeted Reserve Cut for 16 March, Expects to Unleash 550B Yuan in Long-term Funds

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The Chinese central bank will cut the required reserve ratio (RRR) for domestic lenders on 16 March, amidst ongoing efforts to help China’s economy weather the impacts of the novel coronavirus.

The People’s Bank of China (PBOC) announced via its official website that banks that satisfy assessment standards will enjoy a targeted RRR cut of 0.5 to one percentage points, while qualified joint-stock banks will enjoy an additional targeted reduction of one percentage point, to support the issuance of financial inclusion loans.

PBOC expects the upcoming round of RRR cuts to release around 550 billion yuan in long-term funds, which will “support the growth of the real economy and reduce the real cost of social financing.”

PBOC also said that it had “placed support for the recovery of growth by the real economy in a more prominent position,” but that it would “not engage in large-scale irrigation.”

The central bank will instead focus on “internal and external balance, maintaining rationally ample liquidity, and a mutual correspondence between lending and total social financing growth with economic growth.”

The move by PBOC comes just after a meet­ing of the State Coun­cil con­vened by Pre­mier Li Ke­qiang on 10 March called for “un­veil­ing fi­nan­cial in­clu­sion tar­geted re­serve ra­tio re­duc­tion mea­sures, and ex­tra ex­pan­sions to the vigour of re­serve re­duc­tions for joint-stock banks.”

Wen Bin (温彬), chief re­searcher with China Min­sheng Bank, said the em­pha­sis on joint-stock banks was due to their rel­a­tive flex­i­bil­ity, and abil­ity to bet­ter serve smaller en­ter­prises. 

Wen said that China still has room for fur­ther cuts, given that at pre­sent the av­er­age RRR for Chi­nese fi­nan­cial in­sti­tu­tions is 9.9%, stand­ing at 12.5% for large-scale banks, 10.5% for medium-sized banks and 7% for small-scale banks. 

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