China to Release 92 Trillion Won with Reserve Requirement Ratio Cut... Additional Interest Rate Cuts Expected

The People's Bank of China is accelerating monetary easing by lowering the reserve requirement ratio (RRR) for financial institutions to counter the economic downturn. Market expectations suggest that additional liquidity measures, such as policy rate cuts, may be implemented within the year.

On the 14th, the People's Bank of China announced on its website that starting from the 15th, it would reduce the RRR for financial institutions by 0.25 percentage points. This is the second cut this year following the 0.25 percentage point reduction in March. With this cut, the weighted average RRR in the local financial sector will be approximately 7.4%.

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The People's Bank explained this adjustment as "a measure to consolidate the foundation for economic recovery and maintain reasonable and sufficient liquidity." Regarding the recent economic situation, it assessed that "the economy is recovering, and endogenous momentum is continuously strengthening," while "social expectations are also steadily improving."

The RRR refers to the mandatory cash reserve ratio that banks must hold at the central bank proportional to their deposits. Generally, a cut in the RRR is seen as increasing banks' funding capacity, thereby supplying liquidity to the market. According to Caixin, a Chinese economic media outlet, this 0.25 percentage point RRR cut is estimated to inject about 500 billion yuan (approximately 92 trillion won) of medium- to long-term liquidity into the market. When the RRR was cut by 0.5 percentage points in two rounds last year, 1 trillion yuan was released, and since 2018 (when the RRR was 15%) through March this year, a total of 15 cuts have cumulatively released 11.8 trillion yuan.

Market analysts expect further monetary easing moves from the central bank. Zhang Ziwei, Chief Economist at Pinpoint Asset Management, told Bloomberg, "Beijing's next step is likely to be a more proactive fiscal policy in the fourth quarter," adding, "It is highly probable that next year will see even more aggressive measures." Becky Liu, Head of China Macro Strategy at Standard Chartered Bank, said, "This move suggests that the People's Bank of China's monetary easing could be boldly maintained for the rest of the year," and predicted, "There could be additional cuts to the RRR and policy rates in the fourth quarter, and banks might lower loan rates for prime customers next week."

On the other hand, some believe that given recent signs of economic rebound in China, rate cuts may not occur. Xianglong Wei, an economist at Citigroup, assessed, "With steady progress in real estate easing and fiscal policy gaining momentum, additional rate cuts may not be immediately necessary." He added, "As recent policy implementations accelerate, policymakers will carefully evaluate the effects before taking further measures."

This content was produced with the assistance of AI translation services.