中国降准降息提振经济

This is the third RRR reduction in nearly five months, and the fourth round of interest rate cuts in nearly seven months.

According to the People's Bank of China or PBOC, the latest move aims to further lower borrowing costs and boost the economy through restructuring.

Yao Yudong, director for the PBOC's Finance Research Institute, explains the reasons behind the adjustments.

"First, this is to further support restructuring. The purpose of the RRR reduction is to boost financial institutes' abilities to support farmers, rural and agricultural development as well as small and micro businesses. It also aims to improve the key areas and weak links in the national economy and is conducive for financial institutes to support mass entrepreneurship and innovation."

The central bank has cut the RRR for the second time this year for commercial banks financing the agricultural sector, along with small and micro businesses.

The targeted RRR cut, carried out instead of a general reduction, will help to improve the economic structure and support weak sectors, while also preventing flush liquidity.
Yao continues to explain that it is unnecessary to lower the RRR in a wider range because of the current adequate liquidity.

"Adequate liquidity is one of the reasons for the targeted RRR cut. The targeted cut will increase liquidity to some extent and this is necessary considering that there will be certain scale of RMB consumption during July and August, for example, the profit sharing by major financial institutions, so the adjustment is proactive and preventive."

Some experts point out that it is not usual to see the "double cuts" at the same time. However, against the backdrop of "new normal" of slower but more sustainable growth, the central bank's move has been expected, with its main target to further stabilize economic growth.
Moreover, Yao suggests that the cutting of RRR and key interest rates does not mean a change of the country's prudent monetary policy.

"It can be regarded as a fine-tuning without affecting the monetary policy's consistency and steadiness. Its prudent monetary policy remains unchanged, and still focuses on supporting real economy and structural adjustment. This fine-tuning is an active move to adapt to the new normal of economic development, and sustains a neutral monetary and financial environment."

Experts say the rare easing step of cutting the RRR and the benchmark interest rates will make the monetary policy adjustment more targeted and effective to support the real economy.

For CRI, I'm Wang Wei.