Guangzhou (JLC), January 25, 2024 – China will cut the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points (or 50 basis points), effective from February 5, the People's Bank of China (PBOC) announced on January 24.
The move is expected to provide the market with long-term liquidity of some CNY1 trillion (about USD140.85 billion), Xinhua reported.
This will be the first RRR cut this year, following two cuts in 2023.
However, the cut this time (by 50 basis points) will be much deeper than the previous cuts in 2023. Each cut last year was 25 basis points.
Many see this as a strong positive signal of the government’s determination to enhance support for the economy and the capital market. The RRR reduction, which comes earlier and greater than market expectation, will bolster the confidence of business entities and investors as well as the economic recovery, Xinhua said in a separate article.
“The average level of China's statutory reserve requirement ratio (at present) is 7.4%, and compared with the central banks of other major economies, there is still ample room for policy maneuvers”, Xinhua reported, citing Pan Gongsheng, governor of the PBOC.
In addition, the central bank on January 25 cut the re-lending and re-discount interest rates for the rural sector and small businesses by 0.25 percentage points (25 basis points), respectively, amid efforts to promote moderate decrease of comprehensive financing costs, Xinhua said.
This will help lower the loan prime rate (LPR), which is the benchmark for credit pricing, Pan said.
