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Central bank cuts reserve ratio by 50 basic points, to accelerate economic expansion

China's central bank on Friday makes a decision to cut the required reserve ratio (RRR) of commercial lenders by 0.5 percentage points, a move that will release a long-term capital of about 1 trillion yuan ($154 billion) into the monetary market.

It is the first RRR cut rolled out by the People's Bank of China (PBC) in more than 15 months. The move will optimize the capital structure of financial institutions, enhancing their capacity to provide financial services, and better supporting the real economy in the second half of the year, experts said.

The bulk commodity prices have seen a considerable hike since the beginning of 2021, and small and micro Chinese enterprises have encountered surging production costs and other operational difficulties.

According to the PBC, the RRR cut will reduce the capital cost of financial institutions by 13 billion yuan each year, which will translate and help reduce the comprehensive financing cost of the society through transmission from financial institutions.

However, the new move doesn't mean a reversal of direction in China's macro monetary policy, and it won't have a direct impact on equities and housing trading, industry experts noted.

To control urban housing prices from further growing, the country's monetary policy will likely remain tight, and may become even tighter in the future in a bid to avoid capital flowing into the housing market, Tang Jianwei, an economist at the Bank of Communications, told the Global Times on Saturday.


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