Feb 20 - PBOC Announces the First Reserve Ratio Cut of This Year

Source: People’s Bank of China, ChinaScope Financial (Data)

+   On February 18, the People’s Bank of China (PBOC) announced that the CNY reserve requirement ratio (RRR) will be cut by 0.5 percentage point effective from February 24. This is the first time in 2012 that the PBOC cut RRR.

+   After the cut, RRR will be 20.5% for large financial institutions and 17% for small and medium financial institutions. It is estimated that the RRR cut will provide around CNY 400-500 billion of liquidity.

Interbank rates rose last week, which might have triggered the concerns over liquidity and the RRR cut

Less pressure from hot money inflow, reflected by the lower position in foreign exchange purchase by banks, also supports this RRR cut

The monetary authorities have more policy flexibility as inflation lowers and real interest rates turn positive

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