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China’s People’s Bank of China Implementing Decrease in Deposit Reserve Ratio

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Chinas Peoples Bank of China Implementing Decrease in Deposit Reserve Ratio

It is reported that the People’s Bank of China has decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on March 27, 2023 (excluding financial institutions that have implemented a 5% deposit reserve ratio). After this reduction, the weighted average deposit reserve ratio of financial institutions is about 7.6%.

The People’s Bank of China has decided to reduce the deposit reserve ratio of financial institutions on March 27, 2023

Analysis based on this information:


The People’s Bank of China has declared a .25% decrease in the deposit reserve ratio of financial institutions from March 27, 2023. This rate cut does not involve financial institutions that already have a 5% deposit reserve ratio. As a result, the weighted average deposit reserve ratio of financial institutions will eventually reach around 7.6%. The move is widely viewed as a stimulus measure to maintain the momentum of the Chinese economy.

Deposit reserve ratios refer to the percentage of deposits, which financial institutions are required to maintain on hand as reserves to secure their counterparty risks and liquidity. They are among the key monetary tools by which central banks run their monetary policies. Lowering the deposit reserve ratio injects liquidity into the banking sector, enabling banks to lend more money to their clients, which in turn drives economic development.

The People’s Bank of China’s decision to decrease the deposit reserve ratio can be traced back to considerations such as stifling the COVID-19 crisis impact, supporting small and mid-sized businesses, and preparing for the upcoming Lunar New Year festivals. The Chinese economy has experienced a V-shaped recovery since Q2 2020, but the pressure of inflation and soaring commodity prices, and concerns about a slowdown in real estate growth, have spurred the central bank to take action.

On the one hand, lowering the reserve requirement ratio aims to increase the public’s available money supply and encourage them to spend to spur economic growth. The ratio cut, on the other hand, would increase the incentive for banks to lend, placing upward pressure on Chinese corporate debt. However, in order to avoid debt risks, the People’s Bank of China emphasized the importance of prudent lending practices, especially for small businesses that struggled during the pandemic.

In conclusion, the People’s Bank of China’s decision to lower the deposit reserve ratio for financial institutions to 7.6% from March 27, 2023, is a positive indicator for the overall Chinese economy showing signs of recovery. Its monetary easing impact may further put pressure on inflation, asset price inflation, and leverage in the economy. Nevertheless, it is hoped that the country can strike a balanced approach between supporting growth and tackling risks in this post-pandemic industry.

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