China's central bank on April 3 announced a decision to cut the reserve requirement ratio (RRR) for small and medium-sized banks by 100 basis points in its latest effort to bolster the real economy amid the novel coronavirus outbreak.
The RRR cuts will be implemented in two phases, with the first round of 50 basis-point reductions expected on April 15. The second phase of reduction of equal amount will be effective on May 15, said the People's Bank of China (PBOC), the central bank, in an online statement.
The reduction in the cash that lenders must hold as reserves is expected to unleash around 400 billion yuan (about $56.3 billion) of long-term capital into the market, the PBOC said.
The cuts are expected to inject liquidity into around 4,000 small and medium-sized lenders including rural cooperatives, rural commercial banks, and city commercial banks operating only within provincial administrative areas, adding sources of stable financing for the country's small and medium-sized enterprises (SMEs), the PBOC said.
After the cuts, the RRR for the country's small and medium-sized lenders will be slashed to 6 percent, a relatively low level compared with the ratio in other developing countries and past rates in China, the PBOC noted.
The PBOC will also cut the interest rate on excess reserves for financial institutions from 0.72 percent to 0.35 percent starting from April 7, the first time it slashes the rate since 2008, it said.
The move will push banks to enhance their capital use efficiency and help them better serve the real economy, especially SMEs, the PBOC said.