Chinese mainland stock markets rally on RRR reduction

Chinese mainland shares open higher on Monday after China’s central bank announced to cut required reserve ratio (RRR) by 50 basis points on Friday.

The Shanghai Composite Index rose by 0.93 percent to 3556.93 points in the morning trading. Meanwhile, the Shenzhen Component Index went up by 2.39 percent to 15198.53 points. The ChiNext index finished up 3.95 percent to reach 3543.82 points.

Stocks for rare metals, communication equipment, electronic appliances and medical services firms all saw strong gains.

The rally comes after China’s central bank on Friday announced to cut RRR of commercial lenders by 0.5 percentage points, a move that will release a long-term capital by about 1 trillion yuan ($154 billion) into the monetary market. It is the first RRR cut rolled out by the People’s Bank of China (PBC) in more than 15 months.

The move is aimed at optimizing the capital structure of financial institutions, enhancing the financial services, supporting the development of the real economy, said Wang Yiming, a member of the monetary policy committee of the people’s Bank of China on Monday.

Wang stressed that the comprehensive RRR reduction is a routine liquidity decision which signals that China’s monetary policy has returned to normal and the approach of a prudent monetary policy has not changed.

Wang said that the RRR reduction will fuel banks with abundant liquidity, improve the ability of financial services and ease the operating difficulties faced by some small and micro enterprises.

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