China Cuts Deposit Reserve Ratio to Extend Cash Available for Inclusive Finance

China Cuts Deposit Reserve Ratio to Extend Cash Available for Inclusive Finance

Dou Shicong

Date: Wed, 04/18/2018 - 15:26 / source:Yicai
China Cuts Deposit Reserve Ratio to Extend Cash Available for Inclusive Finance
China Cuts Deposit Reserve Ratio to Extend Cash Available for Inclusive Finance

(Yicai Global) April 18 -- China’s central bank is lowering its deposit reserve ratio by 1 percentage point for most financial institutions as it looks to optimize liquidity in the banking system and make funding more accessible to smaller companies.

The change will take effect from April 25 and affect large, joint-equity, city and non-county commercial banks as well as foreign-backed banks, whose DRR is between 15 and 17 percent, the People’s Bank of China said yesterday. The ratio specifies how much banks must hold in cash reserves with the central bank, and China hasn’t lowered the rate since February 2016.

The move could release as much as CNY1.3 trillion (USD207 billion) into the banking regime, but CNY900 billion will be immediately spent paying back medium-term lending facilities, loans issued by the central bank to financial institutions.

The rate reduction will cut the total cost of borrowing for commercial banks by allowing them to repay the loans early, an executive at the central bank said, adding that the additional cash flowing into the bank system will be issued to small businesses as loans to make financing more accessible and affordable for smaller companies.

China will maintain its moderate and neutral monetary policy, he continued, saying that the total liquidity of the banking system will remain essentially unchanged. The central bank will continue to maintain a high DRR to prevent financial risks by steering monetary credit and social financing toward steady growth, he said.

 

Editor: Jamie Boynton

 

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Keywords: central bank, Deposit reserve ratio, MLF, Inclusive Finance