China’s central bank lowered the reserve requirement ratio for most commercial banks on Tuesday, to free up funds for lending and improve liquidity as the economy sustained growth momentum in the first quarter.
In a statement, the People’s Bank of China said it reduced the ratio of cash that banks should hold as reserves, by 100 basis points, with effect from April 25. The rate is currently at 17 percent and 15 percent.
The central bank said banks could utilize the funds released due to the RRR cut to repay borrowing from the PBoC.
The central bank also required financial institutions to provide loans to small and micro businesses and to lower funding costs.
In order to prevent financial risks, the bank noted that it is necessary to maintain a relatively high reserve requirement ratio.
The stable and neutral monetary policy will remain unchanged, the bank added.
Data released earlier in the day showed that the economy expanded at a steady pace of 6.8 percent in the first quarter of 2018, helped by consumer spending amid moderation in industrial output and fixed asset investment growth.
However, the government targets slower growth of about 6.5 percent for the whole year as it intends to bring stability in the financial system and curb corporate debt and combat pollution.