China cuts small banks' RRR to 8% in funding boost for credit-starved firms

The latest cut will unleash around $41.23b in long-term funding.

Reuters reported that the People’s Bank of China (PBoC) will cut the reserve requirement ratio (RRRs) for small and medium-sized banks effective from May 15, in a move that lends support credit-short companies struggling amidst Beijing’s economic slowdown.

Also read: Chinese banks brace as more reserve cuts loom to boost credit-short SMEs

The RRR for about 1,000 rural commercial banks operating in counties will be reduced to 8%, equivalent to the RRR mandated for smaller rural credit cooperatives. The move is expected to release about $41.23b in long-term funding that can be utilised for loans to small and private companies.

Zhou Hao, analyst at Commerzbank in Singapore, said that the central bank’s showed Beijing has made preparations in the event that the trade talks fail. “I think the market had underestimated China’s determination to deleverage, whilst overestimating China’s willingness to reach a trade agreement.”

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