Description
The reserve requirement ratio for large financial institutions in China is set and announced by the People's Bank of China (PBoC). This rate specifies the portion of deposits that small & medium-sized banks and financial institutions must hold with the central bank as a buffer against liquidity risks. The reserve requirement rate is a key tool of China's monetary policy, and by adjusting it, the PBoC can regulate the lending capacity of financial institutions and control liquidity in the market.
When the PBoC raises the reserve requirement rate, it usually signals an effort to tighten the money supply to combat inflation or prevent economic overheating. Conversely, lowering the rate is intended to release liquidity and support economic growth.