Sat, 04 Feb 2023

BEIJING, Nov. 25 (Xinhua) -- China's central bank said Friday that it has decided to cut the reserve requirement ratio (RRR) for eligible financial institutions by 0.25 percentage points to keep liquidity reasonably ample and lower comprehensive financing costs.

The cut will take effect on Dec. 5, except for financial institutions that have already implemented a 5 percent RRR, the People's Bank of China (PBOC) said in a statement.

It is aimed at maintaining reasonable and sufficient liquidity and appropriate growth in the supply of money and credit, with the implementation of a package of policies and measures to stabilize the economy and shore up support for the real economy.

The reduction in the cash amount that banks must hold in reserve is expected to free up 500 billion yuan (about 70.09 billion U.S. dollars) in long-term liquidity, said the PBOC.

After the reduction, the weighted average RRR for Chinese financial institutions will stand at about 7.8 percent, the central bank said.

The move will also be taken to optimize the capital structure of financial institutions, increase their sources of long-term and stable capital, enhance their capital allocation capacity, and support industries and micro, small and medium-sized enterprises that are severely affected by the pandemic.

The cut is expected to reduce financial institutions' capital costs by about 5.6 billion yuan each year, which will help reduce the comprehensive financing costs of the real economy further, according to the central bank.

Wen Bin, chief economist at China Minsheng Bank, said the cut will help promote the recovery of effective demand for credit and the stable operations of the bond market.

"It will play a positive role in consolidating the upward trend of China's economic recovery and growth," he added.

The PBOC also said that it will enhance the implementation of a prudent monetary policy, strengthen support for the real economy, avoid "flood-like" stimulus, and better utilize monetary policy tools to adjust both the monetary aggregate and the monetary structure to effectively improve the quality and promote the reasonable growth of the economy.

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