MNI BRIEF: PBOC Cuts RRR by 50 Bps, Keeps Liquidity Ample

The People's Bank of China (PBOC) cut the cash reserve ratio requirement for banks on Monday by 50 basis points, releasing CNY1.2 trillion long-term funds into the banking system to boost the economy, support SMEs, and lower funding costs.

The cut will be implemented on Dec. 15, according to a statement on the central bank's website.

The PBOC has not changed its prudent policy stance and the cut is considered a routine operation, as funds released will be used by financial institutions to return the maturing medium-term lending facility (MLF) and fill in the long-term liquidity gap, the central bank said. China will not pursue "credit flood" policies to stimulate its economy, it said.

The cut will reduce banks' borrowing costs by about CNY15 billion a year, promoting lower financing costs of the society, according to the statement.

The PBOC's announcement today, the second RRR cut this year, since the 50 basis points cut on July 15, was expected by the market after Premier Li Keqiang had unexpectedly hinted of an RRR cut last Friday.