Economy News

China central bank has cut the reserve ratio for financial institutions by 0.5%

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The Chinese central bank, in conjunction with the People’s Bank of China, is reducing the reserve ratio of financial institutions by 0.5%.

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As of the 15th, the reserve requirement rate was 8.9%. It was reduced for the first time in 15 months, to support SMEs.

The People’s Bank of China, China’s central bank, announced on the 9th that it would reduce the reserve requirement ratio of financial institutions by 0.5 percentage points. Therefore, the number of institutions that are required to deposit their customers’ deposits with the People’s Bank of China will decrease to 8.9%. The effective date is July 15th.

The reserve ratio represents the central bank’s financial policy by regulating the amount of funds released to the market. Increasing the reserve ratio means accumulating more money and decreasing market funds. In contrast, lowering the reserve ratio increases liquidity.

The People’s Bank of China announced that the reduction of the reserve requirement rate would result in the provision of 1 trillion yuan in long-term funds.

With its decision to lower the reserve ratio for the first time in 15 months, the People’s Bank of China considered the management pressure faced by small and medium-sized enterprises (SMEs) as a result of rising costs from soaring global commodity prices.

Furthermore, the People’s Bank of China said it would enhance the capacity of financial institutions to raise funds, which would support the real economy. In addition, it has implications for creating an appropriate financial environment for high-quality development and supply-side structural reform.

“Several commodities have continued to rise in price this year, and small and medium-sized enterprises have had to cut back on spending due to the high prices. We will be able to offer loans to foreigners.” the People’s Bank of China stated.

The People’s Bank of China however said the reduction of reserve requirements does not change the direction of moderate monetary policy. As a result of the COVID-19 pandemic last year, the People’s Bank of China gradually normalized monetary policy from May 2020 to the first half of this year. To mitigate the economic shock caused by COVID-19, the People’s Bank of China cut the reserve requirement rate three times last year.

Finance institutions will use a portion of the funds released by the reduction in the reserve ratio to return maturing medium-term liquidity support (MLF) windows, and the rest will be used to cover liquidity shortages, according to the People’s Bank of China.

China adheres to stable and efficient monetary policy and will increase its ability to support small and medium-sized enterprises (SMEs) without overhauling its large water supply. We will maintain reasonable liquidity and create an appropriate financial environment.”

On the day before, Vice President Fanfei Pan of the People’s Bank of China said fees for bank accounts, yuan payments, electronic banking, bank cards, and ATMs would be lowered to assist small businesses and small and medium-sized enterprises (SMEs).

The People’s Bank of China projected that this would reduce annual commission fees by 24 billion yuan. Of this amount, more than 16 billion yuan would benefit small and medium-sized enterprises (SMEs) and small business owners.

For MetaNews.

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Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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