China's RRR cut to benefit smaller companies, financial market

Source: Xinhua | 2020-01-09

The Chinese central bank's move to cut the reserve requirement ratio (RRR), effective Monday, will help ease financing strains for small and micro enterprises and boost the stock market, experts said.

The lowered RRR will inject more than 120 billion yuan (about 17.3 billion U.S. dollars) into small and medium-sized banks including city commercial banks and rural commercial banks, reducing financing costs for small and micro companies, said Pan Helin, a postdoctoral researcher at the Chinese Academy of Fiscal Sciences.

Pan also said the central bank move bodes well for the capital market, which is echoed by many market analysts.

The short-term outlook of the capital market is upbeat amid enhanced expectations for monetary policies and positive sentiments, said Tang Jianwei, chief researcher of the Bank of Communications.

Investment bank Morgan Stanley stated in a research note that they expect the Chinese equity market to react positively to the broad-based RRR cut as it confirms the continuation of supportive macro policies.

Major Chinese stock indices closed higher on Tuesday after the RRR cut took effect, with the benchmark Shanghai Composite Index up 0.69 percent at 3,104.8 points and the Shenzhen Component Index up 1.22 percent at 10,829.05 points.