Shanghai Composite recovers as the PBoC cuts the reserve requirement ratio
A 25 basis point cut releases roughly a trillion yuan of liquidity. The market wants to know whether it is the first of several.
The People Bank of China cut the reserve requirement ratio by 25 basis points, releasing an estimated one trillion yuan of long-term liquidity into the banking system. The Shanghai Composite closed up 1.9 percent.
The cut itself was moderately sized and broadly expected. The market interest is in what it signals about sequencing, because a single RRR cut has repeatedly failed to shift sentiment in this cycle while a sequence has occasionally succeeded.
What an RRR cut actually does
The reserve requirement is the share of deposits a bank must hold rather than lend. Lowering it frees capital for lending without changing the price of money. It is a quantity tool, not a price tool.
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