The People's Bank of China's plan to trim required reserve ratios for some banks will not change policymakers' resolve to tighten financial regulation and lower banks' leverage ratios, a senior central bank official told China Daily.
The PBOC said Sept. 30 that it will cut, starting in 2018, the required amount of cash reserves for banks that meet its requirements for lending to small businesses and rural areas.
Cuts to the reserve requirement ratio were previously made to supplement liquidity, especially amid a surge in capital outflows and a sharp drop in foreign exchange reserves, China Daily reported.
However, this was not the case this time because a stronger renminbi is "reversing the direction of cross-border capital flow," the publication noted, citing the unnamed official, who works with the central bank's monetary policy department and the Monetary Policy Committee.
The central bank said that the reduction in the ratio will help lead to more loans to the private and agricultural sectors, which could eventually help stabilize the real economy instead of changing the "prudential" policy tone, China Daily reported.
The decision came after the U.S. Federal Reserve said it would wind down quantitative easing starting in October.
In response to the U.S. balance sheet normalization program, "China will have more initiative to make monetary policy fine-tuning in the future compared with the situation in March and last year, supported by a further stabilized macroeconomic base," the official said.