The picture shows a view of the People’s Bank of China. (Photo: Xinhua)
China’s central bank cut the reserve requirement ratio (RRR) by 0.5 percentage points for financial institutions on Thursday, marking its first RRR cut of the year. The move is expected to provide about 1 trillion yuan ($138.77 billion) in long-term liquidity into the market.
The RRR reduction came following governor of the central bank Pan Gongsheng said on May 7 in Beijing that the People’s Bank of China, the central bank, would roll out a package of monetary policies to enhance macro-economic regulation, including lowering the lending policy rate and RRR.
After the reduction, the RRR for auto financing and financial leasing firms, which directly provide financial support for auto consumption and equipment upgrade investments, would come down to 0 percent, effectively enhancing their credit supply to these sectors, Pan noted.
Pan said that the RRR cut would improve the structure of liquidity provided by the central bank to the country’s banking system, reduce banks’ liability costs, and help cement the stability of their liabilities.
From both macro and micro perspectives, the RRR cut is expected to serve multiple purposes, including boosting domestic demand and accelerating structural adjustments, Lian Ping, director and chief economist of the Guangkai Chief Industry Research Institute, told the Global Times earlier.
Effective May 8, 2025, the interest rate on 7-day reverse repo operations was reduced to 1.40 percent from 1.50 percent. Pan said that the rate adjustment would drive loan prime rate down by about 0.1 percentage point.
Chinese officials on May 7 announced a package of accommodative monetary and fiscal policies to ramp up market expectations and shore up eocnomy. The moves point to sufficient policy tools in the hands of the policymakers to not only ensure stable and sound development of the world’s second-largest economy, but also boost tech innovation and promote high-quality development in the face of global economic uncertainties, market analysts said.
Global Times
