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China cut Required Reserve Ratio to stimulate growth: more monetary easing measures lying ahead

Published on Thursday, February 5, 2015 | Updated on Thursday, February 5, 2015

China cut Required Reserve Ratio to stimulate growth: more monetary easing measures lying ahead

Yesterday, the People’s Bank of China (PBoC) cut the required reserve ratio (RRR) universally, effective from February 5th. It is the first time of a universal RRR cut since May 2012, trimming the RRR by 0.5 percentage points to 19.5 percent. The move is expected to release RMB 600-700 bn in the financial sector, enabling banks to extend more credit in support of the real economy. Meanwhile, the PBoC announced an additional RRR cut of 0.5 percentage point for city commercial banks and non-county-level rural commercial banks to encourage their lending to small and medium enterprises (SMEs). On top of it, the Agricultural Development Bank of China, one of policy banks focusing on financing in rural area, can enjoy an extra cut of 4 percentage points for its RRR, reflecting the authorities’ emphasis on the agricultural sector. All in all, the RRR cut indicates that the PBoC has already shifted to a loosening policy stance amid the intensifying concerns of the economic slowdown. We anticipate more (conventional and unconventional) monetary easing measures to be implemented in the coming months, which is to help this year’s growth stabilize at around 7.0% as we projected.

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