Lowering the foreign exchange reserve ratio of financial institutions to 6% What is the impact of the central bank's RRR cut?

　　Original title: The central bank decided to cut the foreign exchange reserve ratio by 2 percentage points

　　Peng Yang Lianrun

　　The People's Bank of China decided on September 5 that from September 15, 2022, the foreign exchange deposit reserve ratio of financial institutions will be lowered by 2 percentage points, that is, the foreign exchange deposit reserve ratio will be lowered from the current 8% to 6%, in order to improve financial institutions. Ability to use foreign exchange funds.

　　Experts said that reducing the foreign exchange deposit reserve ratio of financial institutions will help increase the liquidity of the US dollar in the market, stabilize the expectations of the RMB exchange rate, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

At present, the two-way fluctuation of the RMB exchange rate has become the norm, and there will be no "unilateral market".

　　Release clear policy signals

　　In the eyes of industry insiders, the recent rapid correction in the exchange rate of RMB against the U.S. dollar with increased volatility is an important background and trigger for the People's Bank of China to cut the foreign exchange deposit reserve ratio this time.

　　On September 5, the central parity rate of the RMB against the U.S. dollar was reported at 6.8998 yuan, and the onshore and offshore RMB exchange rates against the U.S. dollar were at a daily low of 6.9445 yuan and 6.9548 yuan, both hitting new lows since September 2020.

　　"Recently, affected by the Fed's accelerated tightening of monetary policy, the US dollar index once rose above 110, resulting in a passive depreciation of the RMB against the US dollar." Wen Bin, chief economist of Minsheng Bank, said that in this context, the People's Bank of China timely lowered foreign exchange deposits The reserve ratio, which releases a clear policy signal to the market, is conducive to stabilizing the RMB exchange rate expectations and avoiding irrational fluctuations.

　　According to expert analysis, the reduction of the foreign exchange deposit reserve ratio means that domestic financial institutions need to pay less reserves for foreign exchange deposits, which will help increase the liquidity of US dollars in the market, improve the ability of financial institutions to use foreign exchange funds, and help stabilize the RMB exchange rate.

Chang Ran, a senior researcher at Zhixin Investment Research Institute, estimates that at the end of July 2022, the balance of foreign exchange deposits in financial institutions was US$953.7 billion. The reduction of the foreign exchange deposit reserve ratio this time by 2 percentage points can release about US$19.1 billion of foreign exchange liquidity to the market. .

　　A reporter from China Securities Journal noted that this will be the second time the People's Bank of China has lowered the foreign exchange deposit reserve ratio this year.

On April 25 this year, the People's Bank of China decided to lower the foreign exchange deposit reserve ratio of financial institutions from 9% to 8% from May 15th.

At that time, the RMB exchange rate was also in the process of a round of decline. The market exchange rate of the RMB against the US dollar fell below 6.8 yuan at a minimum. After the People's Bank of China lowered the foreign exchange deposit reserve ratio, the RMB exchange rate gradually turned into a range-bound pattern.

　　moderate policy

　　A number of institutional and industry experts said that the reduction of the foreign exchange deposit reserve ratio this time is moderate. While clearly releasing the policy signal of stabilizing foreign exchange market expectations and keeping the RMB exchange rate basically stable, care should be taken to avoid excessive policy adjustments that affect the functioning of the market. , in order to continue to maintain the flexibility of the RMB exchange rate.

　　Chang Ran said that compared with the reduction of the foreign exchange deposit reserve ratio by 1 percentage point in April, the reduction of 2 percentage points this time has increased, but the scale of foreign exchange liquidity released is moderate.

"Since this year, the Federal Reserve has raised interest rates by 225 basis points. The strong dollar has put a lot of pressure on the RMB exchange rate, and the adjustment of the foreign exchange deposit reserve ratio should also be increased accordingly." He explained.

　　Wang Qing, chief macro analyst of Orient Jincheng, suggested that during this round of RMB exchange rate adjustment, the RMB exchange rate index remained stable, and it is expected that the next adjustment will be moderate, and will not pay too much attention to the gains and losses of specific price levels.

　　In addition, industry insiders believe that the monetary authorities have rich regulatory experience and policy tools in preventing overshooting of the RMB exchange rate.

Xie Yunliang, chief macro analyst at Cinda Securities, said that historically, in response to the rapid and excessive depreciation of the RMB exchange rate, the relevant departments have taken measures including introducing a counter-cyclical factor into the exchange rate mid-parity rate and adjusting the risk reserve ratio for forward foreign exchange sales. , adjust offshore RMB liquidity, strengthen capital controls, etc.

　　Two-way volatility is the norm

　　After the announcement of the People's Bank of China's decision to cut the foreign exchange deposit reserve ratio, the RMB exchange rate in both domestic and foreign markets rebounded on the evening of the 5th.

As of 19:00, the onshore and offshore RMB exchange rates against the U.S. dollar both recovered 6.94 yuan, and the latest reported 6.9316 yuan and 6.9399 yuan, rebounding 129 basis points and 149 basis points from the intraday lows respectively.

　　Regarding the future trend of the RMB exchange rate, Zhou Maohua, a macro researcher of the Financial Market Department of China Everbright Bank, analyzed that in the short term, the strong US dollar will still cause certain pressure on the trend of the RMB exchange rate. .

At present, my country's supply chain and industrial chain are recovering smoothly, foreign trade is relatively resilient, the long-term allocation value of RMB assets is prominent, the international balance of payments will remain basically balanced, and the RMB exchange rate has many favorable conditions for maintaining a basically stable exchange rate.

　　Liu Guoqiang, deputy governor of the People's Bank of China, said at the State Council's regular policy briefing on September 5 that in the short term, two-way fluctuations in the RMB exchange rate are a norm, and there will be no "unilateral market".

　　"The exchange rate point is unpredictable. Don't bet on a certain point. We like to see a reasonable, balanced and basically stable RMB exchange rate. We also have strength to support it. I don't think there will be an accident, nor is it allowed to happen." He emphasized.

　　Wang Qing believes that under the background that my country's economy is recovering as a whole and the balance of payments is expected to maintain a large surplus, the depreciation of the RMB exchange rate is not expected to develop excessively, and the exchange rate factor will not form a substantial constraint on the independent control of macro policies.

　　Pang Ming, Chief Economist and Head of Research at Jones Lang LaSalle Greater China, suggested that market players should establish the concept of exchange rate risk neutrality, avoid "foreign exchange speculation" that deviates from risk neutrality, adhere to stable operations, and strengthen risk prevention awareness and ability. Do a good job in risk assessment, conduct reasonable and prudent transactions, moderately hedge exchange rate exposures and control currency mismatches, and rationally arrange the currency structure of assets and liabilities.