The central bank announced a 0.5 percentage point cut in reserve requirement! Release about 1 trillion long-term funds

In order to support the development of real economy and promote the steady decrease of comprehensive financing cost, the people's Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage point on July 15, 2021 (excluding financial institutions that have implemented 5% deposit reserve ratio). After this reduction, the weighted average deposit reserve ratio of financial institutions is 8.9%.

Since the beginning of this year, the prices of some bulk commodities have continued to rise, and some small and micro enterprises are faced with operating difficulties such as rising costs. China adheres to the stability and effectiveness of monetary policy, and instead of flooding, it makes precise efforts to increase support for small and micro enterprises. In the next step, the people's Bank of China will continue to implement a prudent monetary policy, adhere to the principle of stability, maintain a reasonable and sufficient liquidity, keep the growth rate of money supply and social financing scale basically matching the economic growth rate, do a good job in cross cycle design, and support small and medium-sized enterprises, green development, and scientific and technological innovation, To create a suitable monetary and financial environment for high-quality development and supply side structural reform.

People's Bank of China's responsible person on reducing the deposit reserve ratio of financial institutions

1. Does this reduction mean a change in the orientation of prudent monetary policy?

A: the orientation of prudent monetary policy has not changed. In response to the epidemic in 2020, the people's Bank of China insisted on implementing the normal monetary policy. After May, the strength gradually turned to the normal, and in the first half of this year, it has basically returned to the normal before the epidemic. The RRR reduction is a routine operation after the return of monetary policy to normal. Part of the released funds will be used by financial institutions to repay the due medium-term loan facility (MLF), and part of the funds will be used by financial institutions to make up for the liquidity gap caused by the peak tax period in mid and late July, and increase the proportion of long-term funds of financial institutions. The total liquidity of the banking system will remain basically stable. At present, China's economy is stable and developing well. The people's Bank of China adheres to the stability and effectiveness of monetary policy, adheres to the normal monetary policy, and does not engage in flooding.

2. What are the considerations of this reduction?

A: the purpose of this reduction is to optimize the capital structure of financial institutions, enhance the ability of financial services, and better support the real economy. First, while maintaining a reasonable and abundant liquidity, we should enhance the capital allocation capacity of financial institutions to create a suitable monetary and financial environment for high-quality development and supply side structural reform. The second is to adjust the financing structure of the central bank, effectively increase the long-term stable source of funds for financial institutions to support the real economy, guide financial institutions to actively use the funds to reduce reserve requirements, and increase the support for small and micro enterprises. Third, the annual capital cost of financial institutions will be reduced by about 13 billion yuan, which can promote the reduction of social comprehensive financing cost through the conduction of financial institutions.

3. How much money will be released in this time?

A: except for some county-level legal person financial institutions that have implemented the 5% deposit reserve ratio, the deposit reserve ratio of other financial institutions is generally reduced by 0.5 percentage point, releasing about 1 trillion yuan of long-term funds. The main reason for not reducing the deposit reserve ratio of some financial institutions is that the deposit reserve ratio of 5% is the lowest among the current financial institutions, and keeping it at this low level is conducive for financial institutions to support both the real economy and their own stable operation.