The People's Bank of China. Photo: iStock

The People’s Bank of China (PBoC), the country’s central bank, on Friday afternoon announced a 100 basis points (bps) cut in its Reserve Require Ratios (RRR) in a bid to increase liquidity prior to the coming Chinese New Year.

Reserve Require Ratios will be reduced by 50 bps on January 15 and another 50 bps on January 25, the PBoC said in a statement. However, medium-term lending facilities that will due by the end of the first quarter will not be extended.

The PBoC said in another statement that the new measures can help stabilize volatile liquidity during the Chinese New Year, which falls on February 5, while supporting the targeted industries without providing too much capital to the market.

The PBoC said the RRR reduction will release about 1.5 trillion yuan (US$218 billion) of liquidity into the country’s banking system, on top of the extra liquidity from the targeted medium-term lending facility and financial inclusion system, which are aimed to support targeted industries.

As the medium-term lending facility that will due by the end of the first quarter will not be extended, the net release of long-term capital through this RRR cut is about 800 billion yuan.

This RRR reduction will also lower interest payment costs for banks by 20 billion yuan annually.

The central bank added that it will maintain reasonable growth in monetary credit and total social financing while stabilizing the macro-leverage ratio in order to promote high-quality economic growth and supply-side structural reform.

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