Tighten, Ease. Tighten, Ease. PBoC Cuts RRR
China’s central bank will ease capital requirements for qualifying financial institutions in an effort to direct more credit to rural and small businesses, according to a People’s Bank of China (PBOC) document dated Feb. 16.
The PBOC asked subsidiaries to assess local banks’ 2016 loan books, according to the document. It said banks meeting certain criteria will be eligible for a lower reserve requirement ratio (RRR) — the amount of cash that banks must hold in reserve — effective Feb. 27.
RRR falls as dollars flow out of China and liquidity tightens. RRR rises when dollars flow in and liquidity is abundant.