The People’s Bank Of China (PBoC) cut the reserve requirement ratio (RRR) for yuan deposits by one percentage point on January 4. Analysts believe this will support the real economy and lower financing costs for small, private and micro-enterprises, read an article in the People’s Daily.
According to the PBoC, the cut is expected to inject about 800 billion yuan (US$116.8b) of capital into the economy. This cut is a targeted adjustment and prudent monetary policy has not changed, an anonymous PBOC employee said.
Small and micro-enterprises are expected to find it easier to secure funding, Zong Liang, a head researcher with the PBoC, told the People’s Daily. Zong also said the timing of the RRR cut will offset the seasonal liquidity crunch that usually occurs before the Spring Festival.
According to Zong, the next step is to “reduce fees and taxes on a larger scale.” The organic combination of fiscal and monetary policy makes for an ideal measure to spur real economy, the paper said.
Bai Jingming, deputy president of the Chinese Academy of Fiscal Sciences, said personal income tax reforms are conducive to promoting consumption growth, which benefits the supply side. Also, lowering import tariffs can save money for firms and reduce the burden on consumers.
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