In an unexpected move, the People’s Bank of China (PBOC) has cut the reserve ratio (RRR) requirement for banks by 50 bps effective July 15.
Additional comments
It will maintain a prudent monetary policy.
It will keep liquidity reasonably stable.
The weighted average RRR for all financial institutions at 8.9% after the new cut.
The new RRR cut is a normal operation after monetary policy has returned to normal.
Part of the liquidity released by the new RRR cut will be used to pay for the MLF maturity for financial institutions.
The volume of interbank liquidity will be basically stable after the RRR cut.
The new RRR cut will free up long-term liquidity of around 1 trillion yuan.
The new RRR cut will not apply to financial institutions with an existing RRR of 5%.
It will not resort to flood-like stimuli.
It’s worth noting that this is the first RRR cut since April 2020.
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