Wang Tao: PBOC’s Reserve Requirement Cut is a Clear Sign of Easing

As we had forecast in our China outlook 2022 in early November, and in line with Premier Li Keqiang’s Dec. 3 request, the People’s Bank of China (PBOC) announced on Dec. 6 to lower overall Required Reserve Ratio (RRR) by 50 basis points, effective Dec. 15.

According to the PBOC, this cut will release 1.2 trillion yuan ($188 billion) in base money liquidity and partly replace the maturing medium-term lending facility (MLF) loans (950 billion yuan will mature in December). The PBOC also expects the RRR cut to reduce banks’ funding costs by 15 billion yuan per year, which will help lower financing costs of the real economy, especially for SMEs. After the latest RRR cut becomes effective, the standard RRR for large Chinese banks will be 11.5%, while that for medium-sized and small banks will be 8.5% and 5%, respectively.