China Lowers Reserve Requirement Ratio by 0.25 Percentage Points (Comprehensive 1)

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The People's Bank of China, the central bank of China, announced on the 15th that it will cut the reserve requirement ratio (RRR) by 0.25 percentage points.

[Image source=Yonhap News]

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Earlier that day, the People's Bank of China had announced that the one-year Medium-term Lending Facility (MLF) loan rate would remain unchanged at 2.85%.

The People's Bank explained that the reason for lowering the RRR is to optimize the capital structure of banks and other financial institutions and to increase their long-term funding sources by reducing the rate.

It added that this rate cut will enable financial institutions to save 650 million yuan annually.

The People's Bank also stated that it will continue to implement a cautious monetary policy, carefully observe the monetary policies of major advanced countries, and consider both internal and external balances.

The RRR is the cash ratio that commercial banks must deposit with the central bank. Typically, a 0.5% cut creates an additional lending capacity of 1.2 trillion yuan (approximately 231 trillion Korean won).

Chinese Premier Li Keqiang mentioned the RRR during the State Council executive meeting held on the 13th, instructing to prepare measures to expand financial support for stabilizing the real economy.

The loan prime rate (LPR), which serves as the benchmark interest rate, is also open to reduction. The People's Bank of China will decide the LPR on the 20th.

Depending on the first-quarter gross domestic product (GDP) results scheduled for the 18th, there is a high possibility that the People's Bank will lower the LPR.

However, abundant funds in the market due to the issuance of local special bonds in the first quarter and the US interest rate hikes pose obstacles.

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