The People’s Bank of China has moved to cut the reserve requirement ratio for commercial banks as it tries to reduce the impact of the slowdown in its economy, the world’s second largest.

The ratio, which is sometimes referred to as “RRR” or “triple R”, is the amount of cash a commercial bank must hold in reserve against loans they make to consumers and businesses. The PBoC reduces the ratio when it wants commercial banks to lend more and increases it when it wants to drain liquidity from the economy.

The central bank cut the rate by 0.5 percentage points, taking the reserve ratio of most large Chinese banks to 17%.

“The measure did very little to alleviate the general sense of gloom permeating markets after the weekend’s G20 finance ministers and central bankers meeting in Shanghai produced nothing in the way of new and coordinated stimulus,” said Jim Brechin, Chief Asian markets strategist at Japan-based broker-dealer, Resona Partners.

Although China’s economy is still slowing, the central bank still has ammunition available to it including conventional interest rates. However, the weakening of the yuan/renminbi would worsen if the PBoC cut interest rates any further than it already has.

A cut in interest rates now would be poorly received by the markets. China’s currency has already been devalued twice – once in August last year and once again this year. Capital outflows from the country have reached worrying levels as investors try to preserve their purchasing power.

“Despite the apparent paucity of positive news about China right now, Resona Partners sees enormous potential for a bounce in Chinese equities,” said Brechin

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