Chinese Central Bank to Lower Reserve Ratio 0.5 Percentage Points This Week, Unleash One Trillion Yuan

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The People’s Bank of China (PBOC) says it will expand the availability of funds for the real economy in response to global commodious inflation by reducing the reserve ratio for Chinese commercial banks.

On 9 July PBOC announced that starting from 15 July it will reduce the required reserve ratio for Chinese financial institutions by 0.5 percentage points, with the exception of financial institutions that are currently subject to a 5% ratio.

Following the adjustment the weighed average reserve ratio for Chinese financial institutions will stand at 8.9%.

A PBOC official also said that the move is expected to unleash one trillion yuan in funds into China’s real economy, and help smaller businesses to overcome difficulties created by commodities price inflation.

“Since the start of the year commodities prices have continued to rise, and some micro and small-enterprises are facing operating difficulties such as rises in costs,” said PBOC in an official statement.

While PBOC said that it would “expand the vigour of support for micro and small-enterprises,” it also indicated that China would “continue to maintain the stability and effectiveness of monetary policy, and refrain from engaging in flood-style irrigation.”

“The next step will be for PBOC to continue to implement steady monetary policy, uphold the emphasis on stability, maintain rationally ample liquidity, keep the rate of growth in the money supply and total social financing consist with nominal growth in the GDP, and engage in effective cross-cyclical design,” said the Chinese central bank.

PBOC also said that it would “support small and medium-sized enterprises, green development and tech innovation, and operate an appropriate monetary and financial environment for high-quality growth and supply-side structural reforms.”

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