What are the considerations for the People's Bank of China's RRR cut?

　　(Economic Observer) What are the considerations for the People's Bank of China's RRR cut?

　　China News Service, Beijing, December 6th (Reporter Xia Bin) On the third day after Chinese senior officials mentioned "timely RRR cut", the People's Bank of China officially took action: Decided to lower the deposit reserve of financial institutions on December 15, 2021 0.5 percentage point (excluding financial institutions that have implemented a 5% deposit reserve ratio).

What are the considerations behind the central bank's RRR cut?

　　Cheng Shi, chief economist of ICBC International, said bluntly that this RRR cut deeply reflects the three major characteristics of China's monetary policy regulation under the complex domestic and foreign situations.

One is that I am the mainstay, and the tightness is moderate.

The second is to make overall plans and take a long-term view.

The third is pre-adjustment, fine-tuning, and resoluteness.

　　He believes that the current RRR cut has led from expectations to policy announcements, with rapid decision-making and decisive actions, indicating that the Chinese monetary authority has a deep consensus on the current situation and has a clear plan for the effective use of future policy space, and responds to various uncertainties. Be well prepared.

　　“Choosing to cut the RRR at the current point in time reflects that monetary policy is well adjusted across the cycle.” Wen Bin, chief researcher of China Minsheng Bank, said that the RRR cut can release long-term liquidity and guide financial institutions to increase support for the real economy. Improving financial service capabilities is usually used when economic pressure is high.

　　The recovery period after the outbreak ran into a surge in international commodity prices. In the face of domestic and foreign risks and challenges, China's economy this year has maintained steady progress, but it has indeed encountered the pressure of transformation and adjustment.

From the data point of view, China's economic growth rate has fallen. In the first quarter, the GDP increased by 18.3% year-on-year, the second quarter GDP increased by 7.9% year-on-year, and the third quarter GDP increased by 4.9% year-on-year.

　　According to Liang Si, a researcher at the Bank of China Research Institute, what is particularly noteworthy is that after entering the third quarter, due to multiple factors such as repeated epidemics, frequent floods, rising energy and raw material prices, and rapid cooling of the property market, the economic prosperity has declined significantly. Downward pressure increased significantly.

　　"Under the background of the economic downward pressure, the expectations of the economic growth rate in the fourth quarter are also relatively negative. It is generally expected that the economic growth rate will continue to decline. As an important part of the macro-control policy, in order to maintain the normalization of the economy, currency is needed. The policy continues to exert force." Liang Si said.

　　In Wen Bin's view, the RRR cut is in line with the needs of market players.

Although under the effect of the national series of policies to maintain supply and stabilize prices, the recent momentum of commodity price increases has been basically curbed, the tightness of power supply has eased, and the economic prosperity represented by the manufacturing PMI index has rebounded, but the foundation for the recovery of small businesses remains Unstable, its PMI index has been below the decline line for 7 consecutive months, and there is still a need for further policy support.

"This RRR cut reflects the macroeconomic policies that are being carried out around the needs of market players, and it is a concrete manifestation of the increase in monetary policy to bail out companies."

　　The direct effect of the RRR cut is to provide funds for the market.

According to the central bank, the total release of long-term funds this time is about 1.2 trillion yuan (RMB, the same below).

For the purpose of the RRR cut, the relevant person in charge of the central bank gave three aspects.

The first is to effectively increase the long-term stable funding sources of financial institutions to support the real economy while maintaining reasonable and abundant liquidity, and enhance the financial institutions' ability to allocate funds.

　　The second is to guide financial institutions to actively use the RRR cut funds to increase their support to the real economy, especially small, medium and micro enterprises.

　　The third is that the RRR cut has reduced the funding cost of financial institutions by about 15 billion yuan per year, and the transmission of financial institutions can promote the reduction of social comprehensive financing costs.

　　Will the overall RRR cut change China's monetary policy orientation?

Is the era of relaxation coming?

　　"The orientation of the prudent monetary policy has not changed." The above-mentioned person in charge pointed out that the RRR cut is a regular operation of monetary policy. Institutions are used to supplement long-term funds to better meet the needs of market entities.

　　Wang Qing, chief macro analyst at Oriental Jincheng, believes that the current RRR cut is a "routine liquidity operation after the return of monetary policy to normal", and will not bring about flooding effects, nor will it drive a substantial impact on the growth of credit and social financing. High, it will not promote a significant increase in the macro leverage ratio.

　　Wen Bin also specifically mentioned that it is not advisable to blindly compare the monetary policy operations of China and the United States. China's economy is recovering before the United States. The asynchrony of economic cycles determines that monetary policies are also different and cannot be generalized.

In the future, the People’s Bank of China will continue to implement a prudent monetary policy, further enhance the autonomy, forward-looking and effectiveness of monetary policy, take into account internal and external balances, continue to use structural and direct policy tools, and increase support for small and medium-sized enterprises, green development, and technology. Support for key areas and weak links such as innovation has promoted economic operation within a reasonable range.

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