China’s central bank cut its reserve requirement ratio for major commercial banks in order to increase the fund available for lending and support economic growth.
The People’s Bank of China said on Friday that it will cut the reserve requirement ratio by 0.5 percentage points, with effect from July 15. The bank had last reduced the RRR for major banks in March 2020.
The latest measure will release CNY 1 trillion of liquidity into the system, the central bank said.
The PBoC is trying to nudge banks to lower lending rates without shifting its broader policy settings, such as its quantitative controls on credit, Julian Evans-Pritchard, an economist at Capital Economics, said. The near-term economic implications of the RRR cut are likely to be small.
The RRR cut is the first clear sign that, with the withdrawal of last year’s stimulus essentially complete, the focus of policymakers is shifting towards managing structural strains, including the balance sheet weakness of highly-indebted firms, the economist added.
In June, Chinese banks extended CNY 2.12 trillion loans, which was above the expected level of CNY 1.8 trillion and May’s CNY 1.5 trillion.
The broad M2 money supply increased 8.6 percent annually in June compared to the expected rate of 8.2 percent.