GOOD FOR SMALL BUSINESSES
The purpose of the RRR cut is to support farmers, rural and agricultural development and small businesses, the PBOC said.
"Liquidity for Chinese banks is plentiful given their excessive reserves. Reserves of cash over the required amounts are roughly at 3 trillion yuan (490 billion U.S. dollars)," said Yao Yudong, director for the PBOC's finance research institute.
Cutting the RRR and the benchmark interest rates will make monetary policy adjustment more targeted and effective in supporting the real economy, according to Yao.
Despite the drumroll of RRR and rate cuts, borrowing costs for small enterprises remain stubbornly high as risk-averse banks remain reluctant to lend them money.
The Chinese government is encouraging mass entrepreneurship and innovation, most of which will inevitably come from smaller businesses, believing they can inject more vitality to a sputtering economy that has be spoiled by state-led investment for years.
MANNA FROM HEAVEN FOR THE STOCK MARKET
The latest easing may forestall further sell-off of the Chinese stock market next week, which teeters on the brink of systemic financial woes.
The stock market has been through a nightmarish two weeks following moves to cool debt-fuelled rallies and investors' concerns about bubbles.
The benchmark Shanghai Composite Index has slumped 18.8 percent from a peak of 5,178.19 points on June 12. A total of 12.1 trillion yuan in market capitalization on the Shanghai and Shenzhen bourses was wiped out.
Pessimism shrouded the market before the cuts. Most analysts consider a decline of 20 percent from the recent peak means the advent of a bear market.
The stock market has staged an impressive rebound since the second half of last year, a phenomenon generally considered an opportunity for big state-owned enterprises to pay off debts and small businesses to access much needed capital support. However, worries have grown increasingly acute on consensus that soaring stock prices pushed up by a frenzy of speculation are unsustainable.
