MNI BRIEF: PBOC Cuts RRR By 25bp To Boost Economy, Liquidity

The People’s Bank of China announced a 25bp cut in the reserve requirement ratio on Friday to offer long-term liquidity and support the economic recovery.

The PBOC said the reduction in the RRR was to "pursue higher-quality growth and appropriately increase economic output" and that it would "maintain reasonable and ample interbank market liquidity", according to a statement on the central bank's website. The cut is effective from March 27.

The cut follows a 25bp reduction last November and will lower the weighted-average RRR among China’s financial institutions to 7.6%, the central bank said.

The timing of the reduction is surprising as economists and analysts predicted the Bank would hold back using it broad array of easing tools since the economy has shown signs of recovery. However, economists had expected RRR cuts later this year as PBOC governor Yi Gang said in his latest press conference that a RRR reduction was still an effective way to boost the real economy via the provision of long-term liquidity.