China’s RRR cut – what does it achieve

People’s Bank of China (PBOC) reduced its reserve-requirement ratio (RRR) by a huge 1% (or 100 base points), a record-equalling cut.

RRR is the percentage of depositors’ balances a bank must retain in cash – the rate is usually set by the central bank. The reduction of this amount is an easing tool, designed to encourage banks to lend more and reduce interest rates.