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People’s Bank of China cuts RRR to increase liquidity in the banking system

The People’s Bank of China (PBOC) has announced its first reduction in the reserve ratio of commercial banks (RRR) this year, in a move aimed at boosting liquidity in the banking system and reducing the cost of funding for businesses. The decision was made to stimulate economic recovery.

The PBOC cut the RRR by 0.25% for all financial institutions, effective from March 27, with the exception of financial institutions that already have a reserve level of 5%. This move is expected to increase liquidity by releasing funds for lending.

After the RRR reduction, the weighted average RRR for Chinese financial institutions will be at 7.6%, according to the central bank. The PBOC previously lowered the RRR by 0.25% in December 2022.

The reduction in RRR is a policy tool used by the central bank to manage the country’s money supply and encourage lending. The move is expected to provide support to small and medium-sized enterprises, which have been hit hard by the pandemic. It also comes as China’s economy is facing headwinds from a slowdown in consumption and a cooling property market.

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