In a move aimed at bolstering liquidity in the market and supporting a fragile economic recovery, the People’s Bank of China (PBOC) has announced a reduction of the Reserve Requirement Ratio (RRR) for all banks by 50 basis points (bps). This decision injects approximately one trillion yuan ($140 billion) into the market, as reported by Reuters on Wednesday.
The strategic RRR cut comes amidst concerns over a weakened economic rebound and significant declines in stock markets, which experienced a 13% drop in 2023. The downward trend continued into the new year, exacerbated by sustained foreign selling activities.
Despite earlier market expectations for a medium-term lending facility (MLF) rate cut, the PBOC’s commitment to maintaining a loose monetary stance throughout the year is evident in this RRR reduction. Xu Tianchen, a senior economist at the Economist Intelligence Unit, notes that the cut signals the central bank’s dedication to supporting the economy and sustaining a loose monetary policy in the face of prevailing challenges.
