China's central bank on Apr.15 announced a cut in the amount of cash that banks must hold as reserves, which is expected to free up 530 billion yuan ($82.95 billion) in long-term liquidity, as part of the country's efforts to support development of the real economy and reduce comprehensive financing costs.

The reserve requirement ratio (RRR) will be cut by 0.25 percentage points, effective from April 25, except for financial institutions that have already implemented a 5 percent RRR, the People's Bank of China said in a statement.

The decision was widely expected, aimed at coping with this year's challenges beyond expectations, Zhao Xijun, a finance professor at Renmin University of China in Beijing, said to Global Times.

Zhao further explained that more challenges were brought by the triple pressures of shrinking demand, disrupted supply, and weakening expectations. At the same time, challenges affected by the external environment, especially geopolitical pressure, also exceeded expectations last year.

Also, other factors, including the US Federal Reserve's fresh tightening cycle and the pandemic, made these challenges this year more severe, Zhao noted.

After the RRR cut in July and December last year, this year's cut has sent a clear signal of continuing to put financial efforts to support stable economic growth, said Wen Bin, chief analyst at China Minsheng Bank, Beijing Daily reported.

Wen added that the long-term funds released by the RRR cut will not only help reduce the capital cost of financial institutions, lower financing costs for the real economy and make counter-cyclical adjustments, but also enable banks and other institutions to match with fiscal policies as they will have sufficient funds allocated to purchase treasury bonds and local government special bonds.

The cut will reduce the funding costs for financial institutions by about 6.5 billion yuan per year, PBOC said.

Beijing Daily quoted Wang Qing, chief macroeconomic researcher at Golden Credit Rating, as saying that the RRR cut will have three effects: first, it will directly enhance banks' lending capacity and help ease credit; second, when capital costs for banks are decreased and the loan prime rate is reduced, corporate and household loan interest rates will follow suit; and last, it sends policy signals that along with the targeted support policies in technological innovation and inclusive pension re-lending, other money policies are also taking shape.

PBOC has reaffirmed its stance on implementing a prudent monetary policy, avoiding "flood-like" stimulus, and better utilizing monetary policy tools to adjust both the monetary aggregate and the monetary structure.

Still, Wang said the RRR cut cannot rule out the possibility of cutting interest rates. Given the current downward trend in the real estate industry and a resurging pandemic, the interest rate cut can better reverse expectations for the property market and directly reduce financing costs for the real economy.