Reserve requirement ratio slashed for financial institutions

The Chinese central bank decided to inject more than 800 billion yuan ($115 billion) through a broad cut of the cash amount that financial institutions must hold as reserves, or the reserve requirement ratio (RRR), to keep liquidity ample and provide cheaper financing for the real economy.

The RRR cut, 0.5 percentage point for most financial institutions, will take effect on Monday, the People's Bank of China, the central bank, announced on Wednesday.

The cut will increase fund resources for financial institutions, and the PBOC asked commercial banks to use the released funds to strengthen support on small, micro and private companies, a statement on the PBOC website said.

Many local medium- and small-sized commercial banks are credited to receive more than 120 billion yuan from the RRR cut. It also will reduce the banks' financing costs by about 15 billion yuan every year, which will help to lower lending prices for small business, the statement said.

After the cut, liquidity in the banking system will remain stable, and the monetary policy will remain flexible, instead of an aggressive stimulative measure.

"The prudent monetary policy tone has never been changed," the PBOC said.