CHINA (OBSERVATORY) – China’s central bank said on Tuesday it would reduce the amount of cash that most commercial banks should keep as reserves, but would have to use the resulting liquidity to repay loans through its medium-term lending mechanism.
The funds left by banks after repaying their loans should be used to lend to small businesses, the People’s Bank of China said in a statement.
The central bank’s unexpected decision to cut the mandatory reserve ratio after data earlier on Tuesday showed the world’s second-largest economy posted a faster-than-expected 6.8 percent growth in the first quarter of this year.
The mandatory reserve ratio – currently 17 percent for major banks and 15 percent for smaller banks – will be reduced by 100 basis points.
The reduction will take effect from April 25 and will apply to most banks, with the exception of banks supporting state policies such as the China Development Bank.