The People’s Bank of China (PBoC) announced on the first day of 2020 that it would reduce the reserve requirement ratio (RRR), the cash amount that financial institutions must hold as reserves at the central bank – excluding financial companies, financial lease companies and automobile finance companies – by 0.5 percent as of January 6, a move analysts estimated would help release more than 800 billion yuan (US$114.3b) on the market.
It is being seen as a response to Chinese Premier Li Keqiang’s visit to Chengdu, capital of Sichuan Province, at the end of 2019 when he pledged that the government would further help reduce the financing cost of small- and micro-enterprises by reducing the RRR and granting loans and allowances to financial organs.
Analysts said that the latest RRR cut conformed to market expectations pressured by a quicker capital flow as the Chinese New Year approaches.
According to the PBoC, the new available funds will be largely offset by the central bank’s 600 billion yuan (US$85.7b)-valued reverse repo in securities which will gradually be due after the Spring Festival, so the latest RRR cut does not mean a change in China’s monetary policy focus on stability.
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