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 PBC Official: Cutting RRR to Support Real Economy Development
Category:Legislative Updates  
Subject:Finance  
Source:PBC
Publish Date:01-15-2020
 

1. How will this cut on the reserve requirement ratio (RRR) support the real economy?
The cross-the-board RRR cut serves as a countercyclical adjustment and releases more than RMB800 billion of long-term funds, which effectively increases stable sources of funds for financial institutions to support the real economy, reduces the cost of funds thus incurred, and directly supports the real economy. This RRR cut ensures that liquidity remains reasonable and adequate, helps align the growth of money, credit and aggregate financing to the real economy (AFRE) with the economic development, fosters a favorable monetary and financial environment for high-quality development and supply-side structural reform, and improves monetary policy transmission through market-based reforms. In this way, it will energize market entities, further leverage the decisive role of the market in resource allocation, and thus support the development of the real economy.
2. Will this RRR cut help mitigate the difficulties faced by micro and small enterprises (MSEs) and private enterprises in accessing affordable financing?
This RRR cut increases the sources of funds for financial institutions. Big banks are going to increase the availability of services at the community level; small and medium-sized banks will concentrate more on their principal responsibilities and businesses. Both of them are expected to make good use of the funds released from the RRR cut to increase their support for MSEs and private enterprises. After this round of RRR cut, small and medium-sized banks including urban commercial banks that operate only within the province where they are registered, rural commercial banks serving local counties, rural cooperative banks, rural credit cooperatives and village banks will receive over RMB120 billion of long-term funds, thus strengthening their capacity to fulfill the original responsibilities, that is, to serve local MSEs and private enterprises. Meanwhile, this round of RRR cut will reduce banks' cost of funds by approximately RMB15 billion per year, which helps lower actual social financing cost especially for MSEs and private enterprises.
3. Does the RRR cut imply a change in the stance of monetary policy?
The RRR cut effectively offset the cash injections in the run-up to the Spring Festival. The total liquidity in the banking system will remain basically stable with appropriate flexibility. This move is by no means an indiscriminate stimulus measure. Such countercyclical adjustment of monetary policy is appropriate and sound. Our stance of sound monetary policy remains unchanged.

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