Impact of Reserve Requirement Ratio Cut

Xiaohuang:DOORM, the central bank announced a 0.5% cut in the reserve requirement ratio and may cut it by another 0.25%-0.5% within the year. Can you explain the impact of this policy on banks and the economy?

DOORM:The reserve requirement ratio (RRR) cut means that commercial banks need to keep less money in reserve at the central bank, thereby freeing up more funds for loans and investments. Specifically, the RRR cut increases the amount of available credit for banks, supporting them in expanding their lending activities. This helps alleviate financing difficulties for businesses and individuals, promoting economic activities and investments, thereby driving economic growth. In the short term, this policy can boost market confidence and stimulate consumption and investment, but its long-term effects remain to be seen.