1. What is the purpose of this required reserve ratio (RRR) cut?

First, it serves to keep liquidity adequate at a reasonable level, maintain a reasonable growth of money and credit aggregates, ensure implementation of the policy package for stabilizing the economy, increase financial support for the real economy, and bolster reasonable economic growth and quality of growth. Second, it aims to improve the funding structure of financial institutions, expand their sources of long-term stable funding, enhance their capabilities to allocate funds, and support industries as well as micro, small, and medium-sized enterprises (MSMEs) that were severely affected by COVID-19. In addition, this RRR cut will reduce the cost of funds for financial institutions by approximately RMB5.6 billion per year, which will help lower overall financing costs for the real economy via the transmission of financial institutions.

2. What’s the amount of funds that will be released by this RRR cut?

It will free up about RMB500 billion of long-term funds. The PBC lowers the RRR by 0.25 percentage points this time, which will be implemented across the board, except for some incorporated financial institutions that have already implemented an RRR of 5 percent.