The Chinese central bank announced that it would reduce the reserve requirement ratio by one percentage point for the fourth time this year, in hopes of freeing up a total incremental fund of 750 billion yuan (US$50.989 billion), The Paper reported.
From October 15 onward, The People’s Bank of China will reduce the RRR for large commercial banks, joint-stock commercial banks, city commercial banks, rural commercial banks and foreign banks.
On the same day, the above-mentioned banks will use the funds released by the RRR cut to repay the medium-term loan facilities of the central bank where they borrowed.
The total funds released by RRR cut is slightly more than the amount banks needed to repay their MLF.
The central bank uses monetary tools, such as the MLF and the standing lending facility, to manage short- and medium-term liquidity in the banking system.