context: At first glance, lowering the deposit–reserve ratio amid a stably functioning economy and pressure to depreciate the RMB appears unconventional. However, since the released liquidity is required to be used to pay back medium-term lending facilities (MLFs), this policy essentially swaps high-cost borrowing from MLFs (3.3 percent) to low-cost liquidity for banks. This would then translate into lower financing costs for the real economy, especially for small and micro enterprises.
China's central bank, People's Bank of China (PBoC), announced the lowering of deposit–reserve ratio requirements in exchange for payback of medium-term lending facilities (MLFs), to increase financing support for small enterprises, enhance banking system stability, and optimise liquidity structure
- lowering RMB deposit-reserve ratio by 1 percent for
- state-owned commercial banks
- joint-equity commercial banks
- urban commercial banks
- rural commercial banks
- foreign commercial banks
- on the same day, the above banks should pay back MLFs
- PBoC is committed to a prudent and neutral monetary policy, ensuring reasonably stable liquidity, moderate growth of lending and financing, and favourable monetary environment for supply-side reform