Why the RRR is still an effective policy tool in China

There appears to be a great deal of confusion around how cuts to the required reserve ratio (RRR) affect China’s economy, with some even suggesting that changes to the RRR have no impact on monetary conditions whatsoever.

Given that we expect further RRR cuts in the months ahead we thought it would be worth clarifying some misconceptions surrounding the RRR and why we think that it remains an effective tool in China’s monetary policy arsenal. 

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