BEIJING – China's central bank said Monday it will cut funds banks will have to put aside and replenish the financial system with liquidity to support the economy and cut funding costs for businesses.
The People’s Bank of China said in a statement that it will lower banks' reserve requirements by 0.5 percentage points, bringing the weighted average RRR level across the banking system to 8.4%. The cut does not apply to county-level rural lenders, whose RRR is 5%, the central bank added.
The cut, which will take effect December 15, would free the financial system a total of 1.2 trillion yuan ($ 188.19 billion) in liquidity, the PBOC said.
The PBOC said the cut would not change its "prudent" monetary policy stance as some of the liquidity released will be used by banks to repay loans that the central bank has made to lenders through the medium-term credit facility.
The move is intended to strengthen the central bank's cross-cycle adjustment and provide better support for the economy. The PBOC said the RRR cut could help Chinese lenders save around CNY 15 billion in funding costs, thereby increasing aid to small businesses.
The latest cut, like previous currency adjustments, was hinted at by Chinese Premier Li Keqiang, who told IMF chief executive Kristalina Georgieva in a meeting on Friday that Beijing would cut the RRR to help small businesses.
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