The People's Bank of China (PBC) has decided to cut the required reserve ratio (RRR) by one percentage point for rural credit cooperatives, rural commercial banks, rural cooperative banks, village banks, as well as city commercial banks operating solely within provincial-level administrative regions, aiming to shore up the real economy, enhance the support for micro, small and medium-sized enterprises, and reduced financing costs.
The decision will be implemented on April 15 and May 15, with a cut of 0.5 percentage points each time. The cuts will release about RMB 400 billion ($56.4 billion) of long-term funds.
In addition, the PBC has decided to lower the interest rate on excess reserves (IOER) for financial institutions from 0.72 percent to 0.35 percent starting from April 7, which is the first time over the past 12 years that the PBC cut the IOER.
Analysts have said that the PBC’s reduction of the IOER aims to increase the efficiency of capital usage and raise banks’ willingness to lend, which will help banks serve the real economy better, especially micro, small and medium-sized enterprises.