To effectively upgrade and appropriately expand economic output, introduce an optimal combination of macro policies, better serve the real economy, and keep liquidity in the banking system adequate at a reasonable level, the People’s Bank of China (PBOC) has announced that it is scheduled to 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) on March 27, 2023. The weighted average RRR for Chinese financial institutions will be about 7.6 percent after the cut.
The reserve ratio cut this time is expected to release mid- and long-term liquidity of around RMB 550 billion ($80 billion), which will reduce banks’ cost of funds by approximately RMB 7.0 billion ($1.02 billion) per year. This move will help guide financial institutions to further increase support to the real economy and reduce financing costs.