China’s central bank said Tuesday it would lower the reserve requirement ratio (RRR) by one percentage point for most commercial banks, to free up funding for small firms.
The move to cut the amount of cash which most commercial and foreign banks must hold in reserve, to repay loans obtained via the central bank’s medium-term lending facility, will take effect on April 25.
Official data earlier on Tuesday showed that China’s economy grew at a faster-than-expected pace of 6.8 percent in the first quarter.
Cutting the reserve requirement ratio — currently at 17 percent for large institutions and 15 percent for smaller banks — is expected to inject around 400 billion yuan ($63.7 billion) into the economy, the People?s Bank of China said.
The PBOC said it still needs to maintain relatively high reserve requirement ratios for banks to manage financial risks.
The relaxed requirements will allow banks to “increase support for small and medium-sized enterprises and increase financial stability of the banking system”, it said.
Chinese banks — which are overwhelmingly public enterprises — prefer to lend to large corporations and state-owned enterprises rather than private firms. Regulations which make it difficult for small businesses to access funding have given rise to a thriving industry of loan sharks.
The new rule applies to most banks, except policy lenders such as the China Development Bank.
The PBOC said it would continue to implement a stable and neutral monetary policy.