he People’s Bank of China (PBoC) announced on July 9 that it will cut the required reserve ratio (RRR) for financial organs by 0.5 percent as of July 15, excluding those that already implemented a RRR of 5 percent. The RRR is the fraction of deposits banks must hold in reserve.
It comes in response to the State Council’s order to support the real economy and ease the influence of price rises in commodities as demand for food, energy and transportation keeps growing as the global economy recovers.
Analysts predicted that the latest cut will release 1 trillion yuan (US$147.1b) in capital in the long run which the PBoC said will be used by financial organs to repay due medium-term lending facility (MLF), the rate at which the central bank lends to commercial banks, fill the capital gap caused by the tax peak in July and increase the capital used to support small- and medium-sized enterprises.
The PBoC emphasized that the cut does not mean a change in China’s stable monetary policies and that the cut is a normal move after monetary policies returned to normal following the pandemic.