China central bank to cut reserve requirement ratio to boost economy

BEIJING -- China's central bank said Monday it would lower the amount of funds banks have to set aside, replenishing liquidity into the financial system in order to support the economy and reduce financing costs for businesses.

The People's Bank of China said in a statement that it would cut banks' reserve requirement ratio by 0.5 percentage points, which will bring the weighted average RRR level for the whole banking system to 8.4%. The cut won't apply to county-level rural lenders whose RRR is at 5%, the central bank said.

The PBOC said that the cut would release 1.2 trillion yuan $188.19 billion worth of liquidity into the financial system. The PBOC said the cut won't change its monetary policy stance, as part of the released liquidity will be used by banks to repay loans issued by the central bank to lenders via the medium-term lending facility. The move is intended to provide better support to the economy, as well as strengthen the central bank's cross-cyclical adjustment. The PBOC said the RRR cut could help Chinese lenders save around CNY 15 billion in funding costs, allowing them to step up aid to small companies. The latest cut, like previous monetary adjustments, was suggested by Chinese Premier Li Keqiang, who told IMF Managing Director Kristalina Georgieva in a meeting Friday that Beijing would cut the RRR to support small businesses.