RRR reduction landed, adding another boost to economic recovery (Rui Finance)

On March 3, the central bank's RRR cut officially landed. People's Bank of China previously announced, it was decided to reduce the RRR of financial institutions by 27.2023 percentage points on March 3, 27 (excluding financial institutions that have implemented a 0% RRR). Many market institutions and experts said that the RRR reduction means that the market liquidity is more abundant, which will further promote the effective improvement of the quality and reasonable growth of the economy, and add another boost to the stability of the economic market.

Unlock hundreds of billions of dollars in liquidity

RRR reduction is a common monetary policy tool. By adjusting the reserve requirement ratio, the central bank can affect the credit expansion capacity of financial institutions, thereby indirectly regulating the money supply.

People's Bank of China previously announced that after this reduction in the reserve requirement ratio, the weighted average deposit reserve ratio of financial institutions is about 7.6%. A number of institutions expect that this RRR reduction will release more than 5000 billion yuan of working capital. For example, according to the statistics of Guojin Securities, the RRR reduction is expected to release 6000 billion yuan of medium and long-term funds, superimposed on the mid-month MLF (medium-term lending facility) over-renewal of 2810 billion yuan, and a total of nearly 3 billion yuan of medium and long-term funds in March.

Many institutions also said that this RRR cut exceeded the market's general expectations.

According to the People's Bank of China announcement, in order to promote the effective improvement of the quality and reasonable growth of the economy, play a good macro policy combination, improve the level of serving the real economy, and maintain the reasonable and sufficient liquidity of the banking system, this adjustment was made.

"In the context of the continuous recovery of the national economy, the earlier launch of the support policy reflects the top priority of stabilizing growth and stabilizing the overall economic market this year." Zhao Xijun, co-director of the China Capital Market Research Institute of Chinese Minmin University, told this reporter. He believes that the recent changes in the international financial environment and the advance planning and arrangement of policies will also help to further stabilize the expectations for the Chinese market.

Guan Tao, global chief economist of BOC Securities, believes that the RRR reduction is a forward force of the stable growth policy and a timely increase to further consolidate the good momentum of economic recovery. "In order to hedge internal and external uncertainties and ensure better economic results throughout the year, more flexible monetary policy will help consolidate the foundation of the current economic recovery and further boost market confidence."

Boost the confidence of market players

What will be the impact of RRR reduction? In addition to more abundant market liquidity, it will also release benefits for the stock market and bond market.

CICC analyzed that since the beginning of the year, due to the continuous higher than expected credit delivery, interbank liquidity is relatively tight, and this RRR reduction will help alleviate the recent tight interbank capital situation. In the recent environment of frequent overseas risk events, it has also helped to improve domestic investor sentiment.

From the perspective of bond pledge repo rates in the interbank market, the current liquidity has gradually turned to easing. In the week of March 3 to March 20, the 3-day bond repo rate and the 24-day bond repo rate in the interbank market both showed a downward trend.

Sichuan Finance Securities believes that for the stock market, the RRR reduction provides credit support for all walks of life and promotes the improvement of the economy, which will boost the stock market and encourage investor confidence. For the bond market, the RRR reduction released liquid funds, injected liquidity into the interbank market, reduced the cost of funds price, and enhanced the expectation of wide credit, which helped to smooth the volatility of the bond market some time ago.

"The first quarter is often the time of the year when policy efforts are at its strongest, and the early policy tools are in place, so that market players can get support as early as possible and arrange economic activities earlier." Zhao Xijun said that as the national economy continues to recover, the investment in large projects increases, consumption picks up, and the demand for social funds is expected to increase. At the end of the first quarter, the RRR reduction landed, reflecting the policy orientation of protecting market liquidity and promoting stable economic growth, which is conducive to stabilizing market confidence.

Give full play to the dual function of total structure

What else will monetary policy do this year? In the view of many experts, escorting the economy is still the key to the formulation and implementation of monetary policy.

Following the "good start" of credit in January, the February financial data further released warmth. According to data released on March 1 People's Bank of China, in February, RMB loans increased by 2.3 trillion yuan, and the scale of social financing increased by 10.2 trillion yuan, both of which hit new highs in the same period in history, while the growth rate of broad money (M1) also hit a new high in nearly seven years. According to the general analysis of the industry, the current macroeconomic upward trend has been further consolidated, driving the continuous recovery of entity financing demand.

Zhao Xijun said that monetary policy can be viewed from both aggregate and structural aspects, in the past two years, the amount of structural tools of monetary policy has been used and sufficient, such as supporting small and micro enterprises, private economy, green development, high-tech industries and other policies, which have played an important role in promoting economic restructuring and improving quality. This year's economic work also has a clear task, which is to promote the overall improvement of economic operation, which requires closer integration of aggregate and structural tools, appropriate and reasonable expansion of aggregate growth, and further contribution to economic recovery.

People's Bank of China said that it will accurately and effectively implement a prudent monetary policy, better play the dual functions of the total amount and structure of monetary policy tools, maintain a moderate total amount of monetary credit and a stable rhythm, maintain reasonable and sufficient liquidity, keep the growth rate of money supply and social financing scale basically match the growth rate of nominal economy, better support key areas and weak links, do not engage in flood irrigation, take into account internal and external balance, and strive to promote high-quality economic development.

Li Jie