A bank staff member checks RMB banknotes at a bank in Lianyungang, east China's Jiangsu Province. File Photo:Xinhua

China’s State Council said on Wednesday that it will make a “timely cut” to the reserve requirement ratio (RRR) for banks to support the real economy. Experts said that the central bank might implement a cut as early as next week. 

According to the State Council, the move could ease the pressure on small businesses from rising commodity prices. The State Council said that it will use monetary tools including RRR cuts to “increase financial support for the real economy,” but also said it would avoid “flood-like stimulus” and that monetary policy will remain stable. 

According to Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, China’s stable monetary policy has left ample room for adjustment, and the increasing monetary supply is likely to help small companies to absorb the upstream inflation in commodity prices. 

The move was perceived as a surprise by some market participants, especially during a time when other central banks around the world are considering hiking rates. 

Global Times