The People’s Bank of China (PBOC) said on its website that it would cut the Reserve Requirement Ratio (RRR) for some banks that meet certain requirements for lending to small business and the agricultural sector.
China’s central bank on Saturday cut the amount of cash that some banks must hold as reserves for the first time since February 2016 in a bid to encourage more lending to struggling smaller firms and energize its lacklustre private sector.
The People’s Bank of China (PBOC) said on its website that it would cut the Reserve Requirement Ratio (RRR) for some banks that meet certain requirements for lending to small business and the agricultural sector.
The PBOC said that the vast majority of China’s banks would be eligible for at least a 50 basis point cut to their required reserve ratio as most met the minimum requirements to qualify.
“The size of the cut is big, it covers all big banks and 90 percent of small and mid-sized banks. Conservatively we estimate 700 billion yuan in liquidity could be freed up,” analysts at Lianxun Securities said in a note.
The PBOC said the move was made to support the development of “inclusive” financial services and will be available to all medium and large-sized banks that meet requirements starting in 2018.
Analysts said the cut was different from previous changes to RRR in that it was a “delayed” cut that will not go into effect until next year.
“Clearly, the market will be disappointed as this cut will not help ease the liquidity conditions in the onshore banking system in the short term,” Zhou Hao, a Singapore-based analyst at Commerzbank, wrote in a note after the announcement.
The PBOC said the reserve requirement rate will be cut by 50 bps – or 0.5 percent – for banks whose loans to the targeted groups account for 1.5 percent of their outstanding loan balance or their newly added loans for the previous year.
