There is still room for reserve requirement ratio cuts: PBC

The People's Bank of China (PBC), the central bank, said on Thursday that there is still room to reduce the reserve requirement ratio (RRR) for banks and pledged to continue to implement the supportive monetary policy to shore up the economy. The comments underscored the PBC's commitment to creating a favorable monetary environment to boost market confidence that will help the country's economic recovery, experts said.

The average RRR for financial institutions now stands at approximately 7 percent, and there is still room for further reductions, said Zou Lan, a senior central bank official. 

The PBC will adjust the intensity and pace of monetary policy regulation based on the recovery of the economy and specific issues facing macroeconomic operations, Zou told a press conference.

The RRR reductions so far this year have produced many positive effects on the economy. For example, the PBC implemented a 50-basis point RRR cut for all commercial banks, effective February 5, to support the economic recovery.

Regarding interest rates, Zou said that the central bank will continue to cut the financing costs to aid enterprises and consumers. Since the beginning of this year, the one-year and five-year benchmark lending rates have dropped by 0.1 and 0.35 percentage points, respectively. However, the narrowing of banks' net interest margins would constrain further cuts in the central bank's policy rates.

The PBC said that it will stick to the supportive monetary policy, accelerate the implementation of previously introduced policy measures, and provide stronger support for high-quality economic development. 

It will utilize a variety of tools to ensure that overall liquidity remains reasonably ample, "aligning the scale of social financing and money supply with the expected targets for economic growth and price levels," Zou said. 

On the structural front, the PBC said it will improve the efficiency of fund utilization and provide high-quality financial services to support strategic industries and vulnerable sectors of the economy. 

The central bank has clearly manifested its firm commitment to maintaining the supportive monetary policy, which will help bolster market optimism, Zhou Maohua, an economist at China Everbright Bank, told the Global Times on Thursday.

"We do not rule out the possibility of the central bank implementing further RRR cuts and use structural tools in response to changes in the macroeconomic landscape, in order to ensure that market liquidity remains reasonably ample," Zhou said.

Given the domestic low-price environment, there is ample room for more favorable policy tools to be utilized, Zhou noted.