The People's Bank of China said on Sunday it would cut the reserve requirement rate - the amount of cash that some banks must hold as reserves by 50 basis points (bps), effective July 5.
The rate cut would release CNY 500 billion in liquidity for the 5 large state banks and 12 national joint-stock commercial banks.
The latest RRR cuts will also release about CNY 200 billion in funding for mid-sized and small banks to increase lending to small businesses, the PBOC said.
The banks are also encouraged to use the extra liquidity to conduct debt-for-equity swap.
The total liquidity injection of CNY 700 billion exceeds the market expectation of CNY 400 billion and hence could weigh over the Chinese currency.
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