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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