PBOC Reduces Reserve Ratio 0.5 Percentage Points on 15 May, Undertakes 100B Yuan in MLF


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%.

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