China Cuts RRR by 0.5% Points, Injects 193.8 Trillion Won in Liquidity

The People's Bank of China, the country's central bank, has lowered the reserve requirement ratio (RRR) by 0.5 percentage points, supplying 1 trillion yuan (approximately 193.8 trillion won) in long-term liquidity.

On May 15, the state-run Xinhua News Agency reported that the People's Bank of China announced it would reduce the RRR for financial institutions by 0.5 percentage points starting that day.

Yonhap News Agency

The reserve requirement ratio is the proportion of deposits that banks are required to hold at the central bank. Authorities estimate that a 0.5 percentage point reduction in the RRR will inject approximately 1 trillion yuan in additional long-term liquidity into the financial market.

On May 7, People's Bank of China Governor Pan Gongsheng announced a plan to lower the RRR by 0.5 percentage points and to cut the policy interest rate by 0.1 percentage points during a press conference.

The People's Bank of China also implemented a measure to reduce the RRR for auto finance companies and financial leasing companies from 5% to 0%. This move appears intended to provide additional support for automobile purchases and consumer upgrades, in line with the government's top priority of boosting domestic demand this year.

Yuan Bin, chief economist at China Minsheng Bank, explained to Securities Daily that a 0.5 percentage point reduction in the RRR would lower the weighted average RRR for Chinese financial institutions from 6.6% to 6.2%. He stated that the RRR cut would help alleviate funding volatility, stabilize credit expansion, promote domestic demand recovery, and ease pressure on bank interest margins.

Within China's securities industry, there are expectations of further RRR cuts within the year. Li Chao, chief economist at Zheshang Securities, predicted that monetary policy would remain accommodative in 2025, and that fiscal and industrial policies would create policy synergy. He expects authorities to lower the RRR by 0.5 percentage points and interest rates by 0.2 percentage points within the year.