Beijing, May 15: To support its economy under the uncertain global conditions, the People’s Bank of China (PBOC) has cut the reserve requirement ratio (RRR) of financial institutions by 0.5 percentage points, effective Thursday. The policy move is expected to inject around 1 trillion yuan ($138.9 billion) of long-term liquidity into the financial system.
The RRR reduction is designed to improve the liquidity profile in China’s banking system, reduce banks’ costs of liabilities, and enhance the stability of their liabilities. In particular, the RRR on auto financing and financial leasing companies is lowered to 0 percent, a step that is hoped to increase the provision of credit for areas like automobile consumption and equipment upgrading.
This money loosening is part of a series of policy measures unveiled by PBOC Governor Pan Gongsheng on May 7, such as cutting the seven-day reverse repurchase rate by 10 basis points to 1.40 percent starting May 8. These measures are to promote domestic demand and facilitate the real economy.
Analysts consider these moves to be a proactive measure to balance out economic pressures, such as those generated by ongoing trade tensions with the United States. While an immediate contribution to credit demand can be smothered, liquidity provision should bolster market confidence and enhance leverage in future trade negotiations.The PBOC move is a sign of China’s continued concern for economic stability and stimulating growth through careful monetary policy.
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