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China Cuts Reserve Requirement Ratio to Boost Liquidity

The reserve requirement ratio (RRR) for renminbi deposits across the mainland has been cut by 1% in line with a directive from The People’s Bank of China (PBOC), the country’s central bank. This new requirement, which came into force on 15 October 2018, applies equally to large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks. Overall, the move will inject a net RMB750 billion into China’s banking system, with a share of this increased liquidity used to offset the RMB450 billion medium-term lending facility (MLF) that matured on the day of the RRR change.

Essentially, the reduction to the RRR is intended to optimise the overall liquidity structure, while enhancing the capacity of the financial sector to serve the real economy. It is hoped that the incremental capital unleashed will give financial institutions access to a higher level of funding for small and micro businesses, private enterprises and companies with a particularly innovative mindset.

For further details (in Chinese), please visit the following links:

PBOC Decides on RRR Cuts in Certain Financial Institutions as Means of Offsetting Mid-Term Lending Facility

Prudent and Neutral Policy Stance of Making Further RRR Cuts to Offset Mid-Term Lending Facility Remains Unchanged

Content provided by Picture: HKTDC Research
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