PBoC cut banks’ RRR to 19.5% effective today

This should encourage them to boost lending.

Authority had long avoided a new credit binge, thus they had refrained from reducing RRR across the board since May 2012.

However, the People’s Bank of China (PBoC) cut banks’ reserve requirement ratio (RRR) by 0.5 percentage points to 19.5%; effective today.

According to a report by DBS, PBoC also announced an additional RRR cut of 0.5 percentage points for city commercial banks and non-county level rural commercial banks that achieve lending targets to small businesses. Agricultural Development Bank of China gets an extra cut of 4 percentage points. The policy changes are estimated to free up ~RMB700 bn additional funds that banks can now lend out.

In order not to exacerbate financial risks by unleashing a new credit binge, the authority has refrained from reducing RRR across the board since May 2012. Instead, it cut benchmark interest rates and rolled out a series of targeted easing measures last year, which included direct loans to specific banks and RRR cuts for small lenders.