(Yicai) Sept. 27 -- The People's Bank of China lowered the amount of cash banks are required to hold in reserve and cut a key policy rate at the end of a week that has seen the government roll out the biggest stimulus package since the pandemic.

The PBOC trimmed the reserve requirement ratio by 50 basis points today, bringing down the weighted average for lenders to about 6.6 percent. It also lowered the seven-day reverse repo rate to 1.5 percent from 1.7 percent to enhance counter-cyclical adjustments in monetary policy and support stable economic growth.

PBOC Governor Pan Gongsheng announced the RRR cut on Sept. 24, noting that the move would likely free up about CNY1 trillion (USD142.1 billion) of long-term liquidity. Pan also said the bank may further cut the RRR by 25 bps to 50 bps later this year.

A lower RRR allows commercial banks to lend more and thereby stimulate economic activity, while a reduction in the reverse repo rate will lower borrowing costs in the financial system and guide interest rates, including mortgage rates, lower.

According to this morning’s announcement, the RRR cut aims to maintain a supportive monetary policy stance, strengthen monetary policy regulation, improve the precision of monetary policy control, and create a favorable monetary and financial environment for China’s stable economic growth and high-quality development.

China had lowered the RRR by 50 bps in February, bringing the reduction to 1 percentage point so far this year.

At a meeting yesterday, China’s top leadership emphasized the need to lower the RRR and implement strong interest rate cuts.

Further cuts to the RRR are possible within the year based on market liquidity conditions, according to Zou Lan, director of the PBOC's monetary policy department, Xinhua News Agency reported today. The cut in the reverse repo rate will continue pushing down the loan prime rate and deposit rates as well as encourage banks to trim rates on existing mortgages, Lan said.

Editor: Futura Costaglione