The Central Bank Decided To Reduce The Reserve Requirement By 0.5 Percentage Point And Release About 1.2 Trillion Yuan Of Long-Term Funds

The people's Bank of China announced on December 6 that it decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage point on December 15, 2021 (excluding financial institutions that have implemented the 5% deposit reserve ratio). In order to comprehensively reduce the reserve requirements, a total of 1.2 trillion yuan of long-term funds were released.

According to the relevant person in charge of the people's Bank of China, except for some county-level legal person financial institutions which have implemented the 5% deposit reserve ratio, the deposit reserve ratio has been generally reduced by 0.5 percentage points for other financial institutions. At the same time, considering that most of the financial institutions participating in the assessment of the targeted reduction of the reserve requirements for Inclusive Finance have met the assessment standards of supporting agriculture and supporting small businesses (including individual industrial and commercial households), the policy objectives have been achieved, and the relevant financial institutions have uniformly implemented the most preferential deposit reserve ratio, thus releasing a total of 1.2 trillion yuan of long-term funds.

After this reduction, the weighted average deposit reserve ratio of financial institutions is 8.4%.

Experts said that the RRR reduction can maintain reasonable and sufficient liquidity, effectively increase the long-term stable source of funds for financial institutions to support the real economy, and enhance the capital allocation capacity of financial institutions. This is conducive to strengthening cross cycle regulation, optimizing the capital structure of financial institutions and better supporting the real economy.

In the view of the people's Bank of China, the RRR reduction can guide financial institutions to actively use the funds, increase support for the real economy, especially small and medium-sized enterprises, and reduce the comprehensive financing cost of society.

Does this reduction mean a change in the orientation of prudent monetary policy? In this regard, the relevant person in charge of the people's Bank of China has made it clear that the orientation of prudent monetary policy has not changed. The RRR reduction is a routine operation of monetary policy. Some of the released funds will be used by financial institutions to repay the maturing medium-term loan facility (MLF), and some will be used by financial institutions to supplement long-term funds to better meet the needs of market entities.

(source: Xinhua)