The People’s Bank of China (PBOC) is committed to ensuring sufficient liquidity and flexibility in the country’s banking system, according to a senior central bank official. To achieve this, the PBOC will utilize various monetary policy tools, including reserve-requirement-ratio cuts, open market operations, and medium-term lending facilities.

Zou Lan, the head of the monetary policy department at the central bank, recently stated during a press conference that banks would be guided in adjusting rates on outstanding mortgages. Additionally, the PBOC aims to support lenders in controlling the cost of liabilities. Zou emphasized the importance of countercyclical adjustments and policy reserves to strengthen the economy. The central bank will maintain interest rates at a reasonable level and prevent liquidity from becoming trapped within the banking system.

Economists have suggested that the central bank may consider cutting the reserve-requirement ratio in the near future. Policy loans that are due to mature this year, especially in August, are influencing this expectation. Ming Ming, the chief economist at Citic Securities, has stated that considering the pressures of maturing MLF (medium-term lending facility) and liquidity gaps, a potential RRR cut in August or September should not be ruled out.

Experts also highlight the option of rolling over maturing loans as a strategy for freeing up liquidity.

The last time the PBOC decreased the reserve-requirement ratio was in March, lowering it by 0.25 percentage points for most banks. As a result, the weighted average RRR level for the entire banking system dropped to 7.6%.

The PBOC’s commitment to maintaining ample liquidity reflects its dedication to supporting economic stability and growth in China’s banking sector.

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