The Chinese authorities have once again demonstrated their commitment to fostering new initiatives. They have decided to decrease the reserve requirement ratio (RRR) for banks by 50 basis points. Analysts believe that this move may prove beneficial for the national economy, noting that the Chinese officials have made the right decision. On Wednesday, January 24, the People's Bank of China (PBOC) rolled out a 50 basis point reduction in the RRR for banks. This measure will take effect on February 5. This benchmark for major credit institutions stands at 10.5%. However, the average within China's banking sector does not exceed 7.4%. Last year, the People's Bank of China reduced the RRR twice by 25 basis points each time. PBOC Governor Pan Gongsheng stressed that this initiative would provide 1 trillion yuan ($139.8 billion) in long-term capital. The Chinese authorities aim to stabilize the national economy by promoting economic growth while diminishing the reliance on borrowed funds in the real estate sector, which is currently experiencing a downturn. Previous reports indicated that China's largest state-owned banks had entered the foreign exchange market to bolster the yuan's exchange rate and the value of national companies' stocks. The reduction in the RRR, which denotes the percentage of funds collected from customers that commercial banks maintain in the regulator's accounts, is designed to support the real sector of the economy. This indicator serves as one of the country's monetary policy instruments that manages the money supply within the economy. Notably, the RRR is lowered when the regulatory authority expands lending activities.
