Currently, China's economy continues to recover and expectations as regards the future prospects for economic development continue to improve. To consolidate the foundation for economic recovery and maintain a reasonable abundance of liquidity, the People’s Bank of China (PBOC) has announced that it will cut the required reserve ratio (RRR) for financial institutions by 0.25 percentage points (excluding those that have already implemented an RRR of five percent) as of September 15, which is the second such move this year after the reduction of the RRR in July. Accordingly, the weighted average RRR for Chinese financial institutions is approximately 7.4 percent after the cut.
The reserve ratio cut this time is expected to release long-term liquidity of around RMB 500-600 billion ($70-83 billion), which will reduce banks’ cost of funds by approximately RMB 6.0 billion ($18.3 billion) per year. This move will encourage financial institutions to further increase support for the real economy and reduce financing costs.