THE People’s Bank of China (PBOC) decided yesterday to cut the requirement reserve ratio (RRR) for RMB deposits by one percentage point starting from Oct. 15.

Some of the liquidity unleashed will be used to pay back the 450 billion yuan of the medium-term lending facility that will mature Oct. 15.

In addition, the liquidity of another 750 billion yuan will be injected into the market, according to the latest PBOC statement.

Sources with the PBOC said that the incremental capital would be used to support small and micro enterprises, private enterprises and innovative enterprises to enhance the vitality and resilience of the Chinese economy, strengthen endogenous growth momentum and promote the healthy development of the real economy.

The move remains targeted at adjustment with a goal to optimize the liquidity structure of commercial banks and the financial market and to reduce financing costs, said the central bank.

The PBOC will continuously implement a prudent and neutral monetary policy, refrain from using a deluge of stimulus and focus on targeted adjustment to maintain sound and sufficient liquidity, facilitate rational growth in monetary credit and social financing and create a proper monetary and financial environment for the country to pursue high-quality economic development and advance the supply-side structural reform, it said.

The RRR cut will fill in the liquidity gap of banks and put no downward pressure on the yuan as the country’s monetary policy is not eased, according to the PBOC statement.

There are sufficient conditions for the RMB exchange rate to remain basically stable at a reasonable and balanced level, it said.

“The PBOC will continue to take necessary measures to stabilize market expectations and keep the foreign exchange market running smoothly,” it said.

The RRR cut will cover the yuan deposits of large commercial banks, share-holding commercial banks, city commercial banks, non-county rural commercial banks and foreign banks. (Xinhua)