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China Slashes RRR to Inject Funds into Real Economy

China's central bank has cut the reserve requirements of commercial banks

By Zhang Qingchen Updated Oct.11

A 100 basis point cut to China's reserve requirement ratio (RRR) has divided analysts, according to a report from the China News Service.  

The People's Bank of China (PBoC), the country's central bank, announced the cut for commercial banks on October 7, saying it would be effective from Oct 15, state media Xinhua reports. It is expected to inject some 750 billion yuan into the banking system in a bid to support the real economy.  

Some economists reacted positively, saying the cut would have an indirect impact on the real estate market and the stock market. Fan Ruoying, a researcher at the International Finance Research Institute in the Bank of China, said that the RRR cut could prop up the real economy by providing long-term, stable and low-cost funds for the market, reducing the costs of financing for the brick-and-mortar enterprises.  

But a CITIC Securities analyst, who was not named in the report, said the cut could not meet China's financing needs, especially for private enterprises. Others were concerned that the RRR cut would cause the RMB to depreciate. 

Fan said Chinese monetary policy is more focused on domestic economic conditions, and its primary purpose is to realize stable economic growth. But given the US Federal Reserve raised interest rates, Fan predicts further cuts and warns cross-border capital flows should be monitored and supervised.