The People's Bank of China will cut the required reserve ratio for financial institutions by 0.5 percentage points on July 15, the central bank said in a statement released on Friday. After that, the weighted average reserve requirement ratio for financial institutions will be 8.9 percent.

Due to the rising upstream commodity prices, weak global recovery and relatively lackluster domestic demand, China's manufacturing industry is facing a squeeze on both supply and demand. Particularly micro, small and medium-sized enterprises are facing the dual pressure of rising upstream costs and insufficient downstream demand.

That's why monetary policy tools such as lowering the required reserve ratio should be employed at an appropriate time to further strengthen financial support for the real economy.

The cut in the required reserve ratio for financial institutions will help improve their liquidity and better serve SMEs. Of course, problems such as rising upstream commodity prices and insufficient downstream demand require more direct and targeted policy measures.

That being said, as economic recovery may be more complicated in the second half of the year, more emphasis needs to be placed on the overall coordination and structural deployment of economic policies. This not only requires monetary policy to remain prudent in aggregate or even marginally loose, but also requires fiscal policy to be more proactive. Fiscal policy is more direct than monetary policy in guaranteeing stable growth. Meanwhile, the unevenness of China's economic recovery urgently calls for more targeted structural policies.

The monetary sector has made many policy arrangements for the growth of the real economy and the optimization of the economic structure.

However, the real economy, especially small, medium and micro-sized enterprises, is still facing greater capital pressure and higher capital costs. The main reasons for this are the downward pressure on the economy and the imported inflation caused by rising commodity prices. At the same time, it is also related to the smoothness of monetary policy transmission, especially in the credit market.