China’s big banks are currently pressing the PBOC to cut reserve-requirement ratio based on increasing pressure for high profitability. The discussion between the big banks and the central bank demonstrates that Beijing faces weakening economy with slowing growth. Therefore, cutting reserve-requirement ratio is unavoidable due to the fact that the deposit reserve rate is one of the methods to control inflation in China. Lianping, a chief economist, suggested that “the PBOC should reduce the ratio to an “appropriate” level to help banks and support the economy.” However, cutting reserve-requirement ratio might have a negative influence on the financial stability when the stock market becomes better.
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