Article Highlights

  • Reserve ratio cut for most commercial and foreign banks
  • 100-basis-point cut effective on April 25
  • PBOC says still needs to maintain relatively high RRR for banks
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China’s central bank said on Tuesday it will cut the amount of cash most commercial and foreign banks must hold as reserves to pay back loans obtained via its medium term lending facility, a move aimed at freeing up funding for small firms.

The unexpected move came after official data earlier on Tuesday showed that China’s economy grew a faster-than-expected 6.8 percent in the first quarter.

The People’s Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) – currently at 17 percent for large institutions and 15 percent for smaller banks – by 100 basis points (bps).

The cut is effective on April 25 and applies to most banks, with the exception of policy lenders such as China Development Bank.

The PBOC said it would continue to implement a stable and neutral monetary policy while maintaining reasonable and stable liquidity in the financial system.

China’s central bank also said it still needs to maintain relatively high reserve requirement ratios for banks to fend off financial risks.

The PBOC requires financial institutions to mainly use the newly-released funds from the reserve cut to provide loans to small and micro companies and lower funding costs for them, which it said would be included as a requirement in its macro-prudential assessment for banks.

Banks included in the cut include large commercial banks, joint-stock commercial banks, city commercial banks, non-county-level rural commercial banks and foreign banks.

The PBOC also said it would guide reasonable and steady growth in credit and social financing.