1.Does the reduction of required reserve ratio (RRR) indicate a shift of the sound monetary policy stance?
The stance of sound monetary policy remains unchanged. The RRR reduction is a conventional operation of the monetary policy. Part of the funds unleashed will be used by financial institutions to repay maturing medium-term lending facilities (MLFs), and part will be used to replenish their long-term funds to better meet the needs of market players. The People’s Bank of China (PBC) will continue to pursue a normal monetary policy, ensured its continuity, consistency and sustainability, and refrained from adopting indiscriminate stimulus measures to create favorable monetary and financial environment for high-quality development and supply-side structural reforms.
2. What is the purpose of the RRR reduction？
The RRR reduction aims to improve cross-cycle adjustment, optimize the funding structure of financial institutions and enhance their capabilities in financial services, thus better supporting the real economy. First, while keeping adequate liquidity at a reasonable level, the PBC attempts to effectively increase the long-term stable funding sources for financial institutions to support the real economy and strengthen the capabilities of financial institutions to mobilize funds. Second, the measure will guide financial institutions to make good use of the funds unleashed from the RRR reduction in boosting their support for the real economy, especially the micro, small and medium-sized enterprises (MSMEs). Third, the RRR reduction will lower the funding costs of financial institutions by approximately RMB15 billion annually, which, through the transmission of financial institutions, will further reduce the overall social financing costs.
3. How many funds will be unleashed by the RRR reduction?
This round of RRR cut is to be implemented across the board. Except for some county-level incorporated financial institutions that have already implemented an RRR of 5 percent, the RRR reduction of 0.5 percent will apply to other financial institutions. Given that most of the financial institutions participating in the targeted RRR reduction under inclusive finance assessment have met the assessment criteria for supporting agriculture and small businesses (including self-employed businesses), and the policy objectives have been achieved, the most favorable RRR ratio will apply to relevant financial institutions. By doing so, the measure will unleash about RMB1.2 trillion in long-term funding.
