The Chinese central bank has just implemented its third targeted reduction to the required reserve ratio (RRR) for banks in 2020, as part of broader measures to channel liquidity to smaller businesses in the wake of the COVID-19 outbreak.
On 15 May the People’s Bank of China (PBOC) announced that it had reduced the RRR for a select group of smaller banks by 0.5 percentage points, to unleash long-term funds of approximately 200 billion yuan.
These banks include rural village financial institutions, as well as municipal commercial banks whose operations are confined to a single Chinese province.
The 15 May reduction is part of a two-stage cut of 1.0 percentage points, the first of which was implemented on 15 April.
The move will reduce the RRR for China’s roughly 4000 small and medium-sized banks to 6%, unleashing as much as 400 billion yuan (approx. USD$56.38 billion) in liquidity.
The latest RRR cut implemented in April and May marks the third this year, as well as the 10th since early 2018.
On 16 March 2020 China implemented a targeted RRR cut of 0.5 to one percentage points for banks that satisfied requirements, while qualified joint-stock banks also enjoyed an additional targeted reduction of one percentage point to support the issuance of financial inclusion loans.
15 May also saw PBOC undertake 100 billion yuan in medium-term lending facilities (MLF) worth 100 billion yuan, at an unchanged rate of 2.95%.