People’s Bank of China lowers RRR to support the economy in face of the COVID-19 crisis

The People’s Bank of China on Tuesday announced a cut in the reserve requirement ratio (RRR) of commercial banks. This is the latest attempt by the central bank to support the economy amid the COVID-19 pandemic.

The People’s Bank of China is lowering the RRR for all financial institutions by 0.25%. This will take effect from December 5, with the exception of financial institutions that already have a reserve requirement of 5%.

It is expected that the reduction of the RRR will inject 500 billion yuan into the economy in the long run.

The central bank said that the weighted average RRR for Chinese financial institutions will be 7.8% after this cut.

This measure is the second cut in the key interest rate this year, following the People’s Bank of China’s announcement of a 0.25% cut in April.

In addition, the central bank said it will continue to pursue a prudent monetary policy. The central bank will maintain liquidity in the system at an appropriate level in order to reduce financing costs. This includes the use of various instruments for financial restructuring.

The announcement of the RRR cut this time came at a time of concern about the impact of the COVID-19 epidemic. This led to concerns about economic growth in the fourth quarter in view of a slowdown in the real estate sector and weak demand for Chinese products on the world market.

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