China financial media front page opinion piece – PBOC might cut its RRR in Q4

China Securities Times citing analysts in the article.

We’ve been hearing over and over about this cut being ahead. Given the steady drip of stimulus measures I guess it’ll come. Nailing a likely date is very difficult given the lack of transparency at the People’s Bank of China though. Sometimes I wonder if lack of transparency might be beneficial. All we seem to get from all this forward guidance from other central banks is misled. but maybe I am just a curmudgeon.

The Reserve Requirement Ratio (RRR) is a central bank regulation that sets the minimum amount of reserves each bank must hold in relation to their deposit liabilities. Its the percentage of total deposits that banks are legally required to keep on hand, either as cash in their vaults or in a reserve account at the central bank.

  • In China, this ratio is set by the People’s Bank of China (PBOC).
  • By adjusting the RRR, the PBOC can influence the lending capacity of commercial banks. For example, an increase in RRR means that banks have less money to lend out because they have to keep more in reserve. This reduces the money supply in the economy. Conversely, if the PBOC decreases the reserve ratio, banks have more money to lend because they are required to keep less in reserve. This increases the money supply in the economy, which can stimulate economic activity.

This article was written by Eamonn Sheridan at Source