China's central bank cuts RRR to support real economy

The People's Bank of China, the nation's central bank, cut the reserve requirement ratio for financial institutions on Friday its latest move to support the real economy with a focus on smaller businesses and the agricultural sector.

The PBOC will lower the RRR for all financial institutions, excluding those already adopting an RRR of 5 percent, by 0.25 percentage point on April 25, the central bank said in a statement on Friday.

City commercial banks without cross-province operations and rural commercial banks with an RRR above 5 percent will see an additional cut by another 0.25 percentage point, in a bid to strengthen support for small and micro businesses and the agricultural sector, the statement said.

In total, the move will bring down the weighted average RRR from 8.4 percent to 8.1 percent and release long-term funds of 530 billion yuan ($83.16 billion), the central bank said.

The cut aims to increase long-term funding to financial institutions, encourage them to use the funds released to support sectors hit hard by the COVID-19 and medium, small and micro-sized enterprises, and lower the financing burden in the economy by reducing financial institutions' funding costs.

The funding cost of financial institutions will drop by about 6.5 billion yuan annually thanks to the RRR cut, the central bank said.

Looking ahead, the PBOC will continue to implement prudent monetary policy, keeping a close eye on price levels and monetary policy adjustments in major developed economies while promoting a reduction in financing costs and stabilizing the macro economy.

The RRR refers to the proportion of money that lenders must hold as reserves. China last cut the RRR in December by 0.5 percentage point.