China has cut the amount of cash banks must keep in reserve at the central bank in an effort to support lending and strengthen the economy’s recovery from pandemic restrictions and a property market slump.
The People’s Bank of China reduced the reserve requirement ratio for almost all banks by 0.25 percentage points, effective from March 27, it said in a statement on Friday. The PBOC last cut the RRR in December, by the same magnitude.
Economists said the cut was aimed at ensuring liquidity in the banking system to sustain the rapid pace of lending seen in January and February. The move sends a “clear signal” that the authorities intend to guide financial institutions to better stabilize growth, expand domestic demand and consolidate the recovery, said the Economic Daily, a newspaper affiliated with the State Council, China’s cabinet, in a Saturday commentary.
The magnitude of the reduction was based on consideration that the RRR is currently at “a relatively low” level and that the monetary policy should remain prudent, according to the article. The PBOC has delivered 14 RRR cuts since 2018, lowering the weighted average ratio for banks to under 8 percent from nearly 15 percent and releasing more than 11 trillion yuan ($1.6 trillion) in long-term liquidity, it added.