The People's Bank of China (PBOC), the country's central bank, Friday announced it would cut the reserve requirement ratio (RRR) by 50 basis points for eligible financial institutions from July 15 to support the real economy.

The RRR cut, which will be imposed on all financial institutions except those who have already held the ratio at 5 percent, will likely release 1 trillion yuan (about 154.43 billion U.S. dollars) in long-term funds, the PBOC said.

After the reduction, the weighted average RRR for Chinese financial institutions will stand at 8.9 percent, the central bank said.

The cut aims to improve the fund structure of financial institutions and boost their capabilities in financial services to improve support of the real economy, the central bank said.

Financial institutions will use part of the released funds to repay the maturing medium-term lending facilities. Some funds will also fill the liquidity gap in the tax payment season late this month.

The reduction will lower the fund costs for financial institutions by around 13 billion yuan each year, according to the PBOC calculation.

The RRR cut is a regular operation after the country's monetary policy returned to the pre-epidemic status, the central bank said.

"The direction of the prudent monetary policy has not changed," it said.

Rather than resorting to a "flood-like" stimulus, the PBOC pledged to stick to a normal monetary policy while keeping it stable and effective.

A State Council meeting decided earlier this week that China will adopt monetary tools such as RRR cuts at an appropriate time to increase financial support for the real economy, especially for small firms. It will also mitigate the impact of commodity price hikes on company operations.

Driven by rising commodity prices, China's producer price index, which measures costs for goods at the factory gate, went up by 8.8 percent year on year in June after registering a 9-percent growth in May.

The country's new yuan-denominated loans totaled 2.12 trillion yuan last month, up by 308.6 billion yuan from the same period last year, central bank data also showed Friday.

Newly added total social financing, a measurement of funds the real economy receives from the financial system, reached 3.67 trillion yuan in June, 200.8 billion yuan higher than for the same period last year.

In the next stage, the PBOC said it would continue to implement a prudent monetary policy while keeping liquidity at a reasonable and ample level to create a suitable monetary and financial environment for China's high-quality development and supply-side structural reform.

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