PBOC's new rules to boost bank liquidity will take effect on Tuesday

On Friday we got the news that the People’s Bank of China will change the way it calculates the reserve requirement ratio

In effect what the new rules mean is that banks in China will have great flexibility in the amount of cash they must keep in reserve. It boosts bank liquidity, especially during shortages.

• The new rules allow the reserves the banks keep at the PBOC to be up to 1% below the required level
• (The RRR is currently at 18%)
• The 18% level must be achieved, on an average basis (no time frame was specified for the 'average'), but on a day-to-day basis cash on reserve can fall to 17%

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Anything that adds flexibility to/boosts liquidity will be welcome news and will be viewed as a positive for China risk (including the AUD). Its not a game changer, but a straw off the camel's back.