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BEIJING–China’s central bank said Monday that it would lower the amount of funds banks have to set aside, replenishing liquidity into the financial system in a bid to support the economy and cut 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 point, 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 stands at 5%, the central bank added.
The cut, effective Dec. 15, would release a combined 1.2 trillion yuan ($188.19 billion) worth of liquidity into the financial system, the PBOC said.
The PBOC said the cut won’t change its “prudent” 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 aimed at strengthening the central bank’s cross-cyclical adjustment and providing better support to the economy. The PBOC said the RRR cut could help Chinese lenders save around CNY15 billion in funding costs, enabling them to step up aid to small companies.
The latest cut, like previous monetary adjustments, was hinted at 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.
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