China Cuts Key Rate, Frees Up Cash for Banks to Spur Growth

Bloomberg
27 Sep 2024

China cut the amount of cash banks must keep in reserve Friday, in a bid to free up money for financial institutions and bolster their efforts to boost the nation’s slowing economy.

The People’s Bank of China’s 0.5 percentage point reduction to the reserve requirement ratio was announced earlier this week by central bank chief Pan Gongsheng, who didn’t provide a timeframe.

The cut is intended at “strengthening monetary policy adjustment” to create a “good” environment for the steady growth of the Chinese economy, the PBOC said in a statement.

The central bank also cut the seven-day reverse repo rate to 1.5% from 1.7% on Friday, authorities said in a separate statement, confirming the timing for another move already revealed by Pan.

The cut in the RRR will free up about 1 trillion yuan in long-term liquidity for banks, Pan said previously. That will allow banks to lend more and buy government bonds issued to fund infrastructure spending.

The weighted average RRR will drop to around 6.6% after the cut, the PBOC said.

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