Core Viewpoint - The People's Bank of China (PBOC) has implemented a 0.5 percentage point reduction in the reserve requirement ratio (RRR) for financial institutions, releasing approximately 1 trillion yuan in long-term liquidity to the market, which is expected to stabilize the financial environment and support economic recovery [1][2]. Group 1: Monetary Policy Impact - The RRR cut effectively countered the funding disruptions caused by government debt payments and the maturity of medium-term lending facilities, maintaining a stable and loose liquidity environment [1]. - The average RRR level decreased from 6.6% to 6.2%, providing banks with long-term low-cost funding [1]. - The special arrangement for auto finance and financial leasing companies, reducing their RRR from 5% to 0%, enhances their ability to support automotive consumption and equipment investment [1]. Group 2: Market Reactions - Following the RRR cut, trading strategies in the bond market shifted, with increased focus on "rolling overnight" trading strategies and a significant rise in the volume of pledged repos in the interbank market, reaching 7.4 trillion yuan and 7.5 trillion yuan on May 14 and 15, respectively [1]. - The weighted average price of DR007 only increased by 0.74 basis points to 1.5245% on May 15, indicating that the liquidity released by the RRR cut effectively alleviated short-term funding pressures [2]. - Despite a high net government debt payment of 645.3 billion yuan, the long-term liquidity injection from the RRR cut stabilized market funding conditions [2]. Group 3: Future Outlook - Analysts anticipate further RRR cuts in the year, with some expecting a total reduction of 1 percentage point, similar to the 2024 reduction, while others suggest there is still a potential space for a 2-2.5 percentage point cut [2]. - The RRR cut reflects a moderately accommodative monetary policy stance, injecting long-term liquidity to stabilize the financial environment and provide banks with sufficient funding to support the real economy, thereby promoting domestic demand recovery and economic improvement [2].