China's central bank announced Tuesday it will cut the reserve requirement ratio (RRR) for most commercial and foreign banks.

 

中国人民银行周二宣布将降低大部分商业银行以及外资银行的存款准备金率。

 

The People's Bank of China (PBOC) will cut the RRR for most banks by 1 percentage point from April 25 to help small businesses, and to improve overall stability and liquidity¹ in the economy. The move does not include policy lenders such as the China Development Bank. 

 

Funds released will be used to pay back medium-term lending facilities, according to the PBOC website.

 

"The move aims to create a sound environment for high-quality growth and supply-side structural² reform," it said.

 

The central bank said it will keep monetary³ policy prudent⁴ and neutral, maintain a stable, reasonable level of liquidity, and oversee⁵ moderate growth of financial credit and social financing.

 

The RRR cut comes after GDP expanded 6.8 percent year on year in the first quarter, unchanged from the previous quarter.

 

A targeted RRR cut earlier this year encouraged inclusive financing by commercial banks, such as credit support for small and micro enterprises, startups and agricultural production.

 

The PBOC has recently managed market liquidity through targeted moves rather than across-the-board adjustments of interest rates or RRR.

 

The last cut to the benchmark RRR was in March of 2016, when the rate was lowered by 0.5 percentage point.

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