Via China China Securities Journal, a state-run media outlet in China:
People’s Bank of China (PBOC) could take further measures in H2 of 2025
- Such as an RRR cut if necessary
In order to
- further release long-term liquidity
- to ensure that liquidity remains reasonably ample in the middle of the year and in 2H25
- creating a suitable monetary and financial environment for the continuous economic recovery and improvement
The article added that the PBOC’s release of about RMB1 trillion worth of liquidity to the market through RRR cut last month.
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The Reserve Requirement Ratio (RRR) is a central bank regulation that sets the minimum amount of reserves each bank must hold in relation to their deposit liabilities. Its the percentage of total deposits that banks are legally required to keep on hand, either as cash in their vaults or in a reserve account at the central bank.
- In China, this ratio is set by the People’s Bank of China (PBOC).
- By adjusting the RRR, the PBOC can influence the lending capacity of commercial banks. For example, an increase in RRR means that banks have less money to lend out because they have to keep more in reserve. This reduces the money supply in the economy. Conversely, if the PBOC decreases the reserve ratio, banks have more money to lend because they are required to keep less in reserve. This increases the money supply in the economy, which can stimulate economic activity.
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