The Central Bank of China is poised to cut the reserve requirement ratio (RRR) by 50 basis points for all commercial banks, starting July 15.
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The policy adjustment is projected to release an estimated $154 billion in expanding long-term liquidity into the economy. Investment bank UBS expects the move to boost market sentiment, good news for the stock market.
The reserve requirement is the amount of money that banks are required to hold in their coffers as a percentage of their total deposits. Reducing the amount necessary will give the banks extra funds to allocate to business and individual loans.
In the short term, the RRR cut would boost liquidity-sensitive industries, such as electronics, aerospace and defense, IT, and media.
UBS estimates companies with strong earnings expectations in sectors such as the new energy sector, electric vehicles, and batteries will outperform their expectations.
The analysts noted the policy change is an acknowledgment of the risks facing the growth of the Chinese economy.