Latest News Stream - Cash Reserve Ratio

The People's Bank of China will raise the foreign exchange reserve requirement ratio (RRR) for financial institutions by 2 percentage points, to 6% from 4%, effective November 15, to tighten dollar liquidity and slow the yuan’s recent appreciation. The adjustment is expected to withdraw around USD 24 billion from the financial system. The move reverses the central bank’s September 2023 decision to lower the ratio to curb the yuan’s depreciation and capital outflows. The yuan has gained more than 5% against the U.S. dollar this year, supported by resilient exports and corporate currency conversions, but further appreciation could undermine export competitiveness.

The central bank of the Philippines reduced the reserve requirement ratio for universal and commercial banks by 200 basis points to 5%, marking the first RRR cut of the year. Additionally, the BSP lowered the RRR for digital banks to 2.5% and for thrift banks to 0%. These adjustments will take effect on March 28 and apply to local currency deposits and deposit substitute liabilities of both banks and non-bank financial institutions with quasi-banking functions. The central bank highlighted that reducing the reserve requirement ratios will help alleviate barriers that impede effective financial intermediation. Moreover, the central bank reaffirmed its long-term objective of empowering banks to allocate their funds more efficiently toward productive loans and investments.

The Reserve Bank of India (RBI) reduced the Cash Reserve Ratio (CRR) by 50bps to 4.0% at its December 2024 meeting, marking the first such reduction since April 2020 and defying market estimates of no changes. The move aimed to boost market liquidity. Excess liquidity in the banking system has reportedly diminished due to the central bank's forex intervention and is expected to tighten further into mid-December ahead of advance tax outflows. This reduction in the CRR is consistent with the neutral policy stance and would release primary liquidity of about Rs 1.16 trillion (USD 13.72 billion) to the banking system, said the RBI in a statement. This reduction is effective in two tranches on December 14 and December 28.

The People's Bank of China (PBoC) lowered the reserve requirement ratio (RRR) for banks by 50bps, the second reduction this year aimed at bolstering a stuttering economy. The change, which takes effect today, Sept. 27, was signaled earlier in the week by Governor Pan Gongsheng, bringing the weighted average RRR to 6.6%. This move will free up about CNY 1 trillion in new lending, with the central bank leaving room for another cut this year. Additionally, the PBoC trimmed the 7-day reverse repo rate by 20bps to 1.5%. This rate is used to determine the nation's key lending rates. It also stated interest rates for 14-day reverse repos, as well as temporary repos and reverse repos, will continue to be adjusted in line with changes to the 7-day reverse repo rate. China has ramped up the rollout of policy initiatives this week, with its top decision-making body, the Politburo, pledging to introduce further fiscal and monetary support measures to prevent further deterioration of the economy.

The central bank of the Philippines cut the reserve requirement ratio for universal and commercial banks by 250bps to 7% on September 20, 2024, delivering another significant reduction in just over a year. The bank also lowered the RRR for digital banks to 4%, thrift banks to 1%, and rural and cooperative banks to 0%. The new ratios will take effect on October 25 and will apply to the local currency deposits and deposit substitute liabilities of banks and non-bank financial institutions with quasi-banking functions. The BSP noted that these adjustments align with its continuing efforts to reduce distortions in the financial system. The reductions will lower intermediation costs and promote better pricing for financial services. Last month, the central bank also slashed its benchmark rate by 25bps to 6.25%, marking its first cut in nearly four years amid an improving inflation outlook.

The People's Bank of China (PBoC) said in a statement Friday that it would slash the foreign exchange reserve requirement ratio (RRR) by 200 basis points to 4% from 6% beginning September, 15th. It was the first such reduction this year, as the central bank seeks to stem further weakness in the yuan and help a faltering economic recovery. The move will effectively free up $16.4 billion worth of foreign exchange with China's FX deposits standing at $821.8 billion at end-July. The board mentioned that this action was to improve financial institutions' ability to use foreign exchange funds. Chinese banks recently began cutting their yuan deposit rates under guidance from the PBoC, which is expected to ramp up local liquidity and present a weaker yuan in the coming months. The local currency is one of the worst-performing Asian currencies this year, falling around 5%, amid an economic downturn in the Chinese economy and widening yield differentials with the US.

The central bank of the Philippines lowered its cash reserve ratio by 250bps to 9.5 percent on June 8th, 2023. The bank also reduced the RRR for digital banks to 6%, thrift banks to 2%, and rural and cooperative banks to 1%. The cut will be effective from June 30 and will apply to the local currency deposits and deposit substitute liabilities of banks and non-bank financial institutions with quasi-banking functions. The purpose of reducing reserve ratios is to align with the expiration of alternative modes of compliance with reserve requirements by the end of June 2023 and thereby ensure stable domestic liquidity and credit conditions. The bank noted that the lower reserve requirements do not signify any change in the monetary policy.

The People's Bank of China announced on May 26th it had cut the reserve requirement ratio (RRR) for big banks by 150bps to 11 percent, aiming to support the economy hurt by the Covid-19 pandemic. Last month, the central bank had already slashed RRR for mid-sized and small banks by 100bps, in two phases, releasing around CNY 400 billion.