China to cut RRR by 0.5 percentage points

China's central bank announced Wednesday that it will cut the reserve requirement ratio (RRR) by 0.5 percentage points for financial institutions starting May 15.

A man walks past the People's Bank of China headquarters in Beijing. China News Service

Financial institutions that have already implemented a 5% RRR will be exempt from the upcoming reduction, and the RRR for auto financing and financial leasing companies will be cut by 5 percentage points, the People's Bank of China (PBOC) said in a statement.

The announcement came after PBOC governor Pan Gongsheng told a press conference that the central bank will roll out a package of monetary policies to enhance macro regulation, including lowering the policy rate and RRR.

Pan told the media that the move is expected to provide about 1 trillion yuan (US$138.9 billion) in long-term liquidity to the market.

The RRR cut will improve the structure of liquidity provided by the central bank to the banking system, reduce banks' liability costs, and enhance the stability of their liabilities, said Pan.

After the reduction, the RRR for auto financing and financial leasing firms, which directly provide financial support for auto consumption and equipment upgrade investments, will come down to 0%, thus effectively enhancing their credit supply to these sectors, he added.

The PBOC also announced today that it will cut the rate for the seven-day reverse repos by 0.1 percentage points starting tomorrow to better implement the moderately loose monetary policy and enhance support for the real economy.

Pan said the policy rate reduction is expected to lead the loan prime rate (LPR), a market-based benchmark lending rate, down by 0.1 percentage points.

Starting tomorrow, the interest rates for the standing lending facility (SLF) will also be reduced by 0.1 percentage points, according to the PBOC. (Xinhua)