The People’s Bank of China (PBOC) said in a statement on Friday, “ the decision to lower RRR is equivalent to providing long-term low-cost funds for banks.”

Additional takeaways

The impact of the recently announced incremental interest rate policy on banks' net interest margins remains neutral overall.

Lowering of the interest rate of the stock of mortgage loans will reduce the interest income of banks, but will also reduce the early repayment of customers.

Lowering 7-day reverse repo rate is expected to asymmetrically reduce loan prime rate and deposit rates.

Banks' net interest margins will remain largely stable.

PBOC’s decision to lower RRR is equivalent to provide long-term low-cost funds for banks.

Medium-term lending facility and open market operation will be the main method for the PBOC to provide short- and medium-term funds to commercial banks.