context: The PBoC (People's Bank of China) has for the second time cut the reserve requirement ratio in 2023. Concerns over a plateauing recovery have plagued the economy since late Q2 2023. Beijing is trying to help the economy find a soft landing as it pivots away from the old real estate and infrastructure investment-led growth model.
PBoC (People's Bank of China) announced that it would reduce the reserve deposit ratio for financial institutions (except for financial agencies with a rate of 5 percent or lower) by 0.25 percentage points to 7.4 percent on 15 Sep 2023. Analysts predict that this RRR (reserve requirement ratio) cut will release more than C¥500 bn of medium- and long-term liquidity, according to Jiemian. It will not only alleviate short-term liquidity needs but also continue to supplement credit growth down the line.
The RRR cut is basically in line with market expectations, explains Zhou Maohua 周茂华 China Everbright Bank macro researcher. The central bank's release of low-cost, long-term stable funds through RRR cuts helps improve banks' capital liability structure, stabilise liability costs and improve credit extension capabilities. In addition, the cuts send a strong signal of stabilising growth, which helps boost market confidence.
The significant increase in credit and the peaking of special purpose bond issuance caused market rates to rise in September, notes Wang Qing 王青 Golden Credit Rating chief macroeconomic analyst. He contends market liquidity is tightening and the RRR cut will help reverse this trend.