1. What are the purposes of the required reserve ratio (RRR) cut?
Currently, liquidity is adequate at a reasonable level. The purposes of the RRR cut are as follows. Firstly, it aims to optimize the funding structure of financial institutions, expand their sources of long-term stable funding, enhance their capability to allocate funds, and ramp up support for the real economy. Secondly, it aims to guide financial institutions to make good use of the funds released from the RRR cut to support industries as well as micro, small and medium-sized enterprises (MSMEs) that have been hit hard by COVID-19. Thirdly, the RRR cut will lower the funding costs for financial institutions by approximately RMB6.5 billion per year, which would promote the reduction of comprehensive social financing costs through the transmission of financial institutions.
2. How many funds will be released through the RRR cut?
The RRR cut will release around RMB530 billion of long-term funds in total. The People’s Bank of China (PBC) is scheduled to cut the RRR for financial institutions by 0.25 percentage points, which is to be implemented across the board, except for some incorporated financial institutions that have already implemented an RRR of 5 percent. Urban commercial banks running businesses within the province of registration and rural commercial banks implementing an RRR of over 5 percent will enjoy an additional RRR cut of 0.25 percentage points, which could help ramp up the support for micro and small businesses (MSBs) as well as agriculture, rural areas and farmers.
3. After the RRR cut, what will be the PBC’s overall considerations?
The PBC will continue to implement a sound monetary policy. First, we will closely monitor price development and maintain the overall price stability. Second, we will pay close attention to the monetary policy adjustments in major developed economies and strike a balance between internal and external equilibria. Meanwhile, we will keep liquidity adequate at a reasonable level, promote the reduction of overall financing costs, and ensure the stability of the whole macro economy.
