The Chinese central bank, the Public Bank of China (PBOC) announced on Sunday that it would be lowering the Reserve Requirement Ratio (RRR) in order to spur on the country's economy which has seen a slowdown in recent times.
The PBOC will, accordingly, reduce the RRR by 100 bps (basis points). At present, the current RRR is placed at 15.5% for the larger banks while it is placed at 13% for the relatively smaller banking establishments. The move will help the PBOC infuse liquidity of over $1 trillion (net) into the system.
Speaking on the decision taken by the banking authority, Beijing-based analytic firm China Center for International Economic Exchanges' deputy chief-economist Xu Hongcai stated, "The trade war's impact on the economy is showing.
There is room for further reductions and I expect another 1% point cut by the year-end." The Chinese central bank's decision comes in the wake of the imposition of duties by the USA on the Chinese exports. Around $200 billion worth of goods have been brought under the purview of the American duties' imposition.
The Chinese central bank's decision to rework the key rates follows the likes of the recent working of the Federal Reserve and the Reserve Bank of India. While the Federal Reserve increased the essential rates, the RBI left them unchanged.
Reserve Requirement Ratio, which is at times also called as the Cash Reserve Ratio is the minimum amount required to be maintained by banks as reserves.