THE proportion of money that Chinese banks must set aside as reserves is still relatively high by global standards and can be adjusted in the future to help provide long-term, stable liquidity to the economy, a senior central banker said.

China on Wednesday announced it will cut the reserve requirement ratio (RRR) from today to spur more lending and lower financing costs. It has cut the ratio eight times since early 2018 as it looks to avert an economic slowdown.

“From an international perspective, China’s current required reserve ratio (RRR) is still relatively high and has relatively big room to adjust,” Ruan Jianhong, head of the Statistics and Analysis Department at the People’s Bank of China (PBOC), said in an article.

Along with other monetary policy tools, RRR adjustments “can provide long-term, stable liquidity to the real economy,” she said.

The 50 basis point cut announced on New Year’s Day released around 800 billion yuan (US$114.91 billion) in funds. It brought the ratio for big banks down to 12.5 percent, compared with 17 percent at the start of 2018.

RRRs for China’s commercial banks range between 7.5 percent to 13 percent. Most deposits in the United States are subject to RRR of 0 percent to 3 percent, while the European Central Bank imposes RRRs of 0 percent to 1 percent, according to the article.

While rolling out a series of growth-boosting measures in the last two years, China’s policymakers have pledged they will not embark on massive stimulus schemes like those launched in past downturns.

Echoing that cautious tone, Ruan said that the RRR adjustments don’t represent changes in China’s monetary policy stance and are aimed at reducing the cost of funding and improving overall liquidity, as the size of China’s monetary base shrank in 2019.(SD-Agencies)