MNI BRIEF: China Cuts Reserve Ratio To Drive Credit Expansion

The People's Bank of China (PBOC) cut the cash reserve ratio requirement for banks on Friday to release CNY530 billion long-term funds into the banking system to boost the economy, support SMEs and lower funding costs.

The central bank cut the RRR at a full pace by 25 basis points for most banks whose RRR is higher than 5%, and urban commercial banks that do not operate across provinces as well as rural commercial banks with a reserve ratio higher than 5%, will enjoy an additional 25 bps cut, aiming to increase support for smaller companies and the agriculture sector.

The cut will be implemented on April 25, according to a statement on the central bank's website. It will reduce banks' borrowing costs by about CNY6.5 billion a year, lowering financing costs for the economy, the statement said. The weighted average deposit reserve ratio of financial institutions will be 8.1% after the adjustment, the statement said.

The cut, the first since a 50-bps cut on December 6, was largely expected by the market after the State Council on Wednesday voiced for the timely use of RRR cut to drive credit expansion to spur growth.

MNI previously reported that policy advisors were expecting a near-term RRR cut.