With effect from July 15, the People’s Bank of China (PBOC) reduced the Reserve Ratio Requirement (RRR) for banks by 50 basis points in an unexpected move.
Will stick to a conservative monetary strategy.
Will maintain a reasonable level of liquidity.
After the revised decrease, the weighted average RRR for all financial institutions is 8.9%.
After the monetary policy has returned to normal, the fresh RRR cut is a routine operation.
The new RRR drop will release some liquidity, which will be utilized to repay maturing MLF for financial institutions.
Following the RRR decrease, the volume of interbank liquidity will be relatively constant.
The new RRR drop will free up around 1 trillion yuan in long-term liquidity.
Financial institutions with a current RRR of 5% will be exempt from the new RRR decrease.
No flood-like stimulation will be used.
This announcement backed up rumors of a rate drop that had been circulating for a week. It’s also worth noting that this is the first reduction in the RRR since April 2020.
The AUD bulls got a boost from the PBOC rate decrease announcement, as the pair rose a few pips and reclaimed the 0.7450 level.
The spot was last seen trading at 0.7447, up 0.22 percent on the day, as risk sentiment began to improve./n
