(Economic Watch) China's central bank lowers RRR at "critical moment" or promotes "two rises, one drop and one stability"

Beijing, September 9 (ZXS) -- China's central bank announced its second RRR cut this year on 14 September, and after this reduction, the weighted average deposit reserve ratio of financial institutions will be about 14.7%. According to estimates, the RRR reduction will release more than 4 billion yuan of medium and long-term liquidity. A number of experts said in an interview with the China News Agency that such a scale of "real money" will promote economic development and the financial market "two liters, one drop and one stability".

After the People's Bank of China recently issued "big moves" such as cutting interest rates and optimizing real estate financial policies, it announced the second RRR cut this year, which is intended to unswervingly promote the sustained recovery and recovery of the economy.

Market analysts said that the RRR cut is at a "critical moment" in the relay of economic recovery. Recently, the macro policy combination has been decisively and continuously, fiscal and taxation, real estate, and monetary policies have successively made efforts, and the market is expected to improve significantly, but the resilience of economic recovery still needs to be enhanced, and the RRR reduction will continue to reflect the policy support effect.

After the RRR reduction landed, there may be "two liters", on the one hand, the price level is expected to recover moderately. The above-mentioned market participants said that with the recovery of market confidence and the further emergence of policy transmission effects, the smoothness of economic circulation has improved, and inflation has recently undergone positive changes, the consumer price index (CPI) in August turned from negative to positive year-on-year, and the year-on-year decline in national industrial producer prices (PPI) also converged for two consecutive months. The RRR reduction continues to enhance the stamina of financial support to expand domestic demand, which is conducive to further giving full play to the early driving role of financial resources and supporting the sustained moderate recovery of inflation indicators.

On the other hand, the RRR reduction will also help improve banks' credit delivery capacity. Liang Si, a researcher at the Bank of China Research Institute, believes that the statutory reserve requirement ratio has become a conventional liquidity management method, which not only plays the role of a buffer pool in the financial market, but also plays the function of "supervising" the expansion of bank credit. The liquidity of the statutory reserve requirement ratio freeze will also raise banks' operating costs.

"Therefore, the RRR reduction releases liquidity with no maturity period, no cost, and no repayment, which not only helps to reduce banks' cost of funds, but also further reduces the regulatory requirements for banks' credit expansion, thereby improving their credit delivery, especially in the medium and long-term credit delivery capacity." Liang Si said.

"One reduction" means that this RRR reduction can further open up the downward space of financing costs in the real economy. Prior to this RRR cut, the central bank has lowered the RRR once and twice this year, and the financing cost of the real economy has fallen significantly. According to central bank data, from January to August, corporate loan interest rates have fallen to historical lows since statistics began, and personal housing loan interest rates have also fallen sharply by 1.8 percentage points year-on-year. It should be noted that the current net interest margin of Chinese commercial banks has narrowed significantly compared with 0.

Wen Bin, chief economist of China Minsheng Bank, proposed that the central bank's RRR reduction again can continuously optimize the liquidity structure of commercial banks and financial markets, reduce the cost of funds on the liability side of banks, further open up the downward space of asset-side loan interest rates, promote the steady reduction of corporate financing and residents' credit costs, further improve the ability of finance to yield profits to entities, and increase the intensity of stable investment and employment.

"Flat" means that money market interest rates may continue to stabilize momentum. It should be noted that affected by multiple factors such as tax payment and bond issuance payment, the 7-day reverse repurchase rate DR007 (7-day repurchase weighted average interest rate of deposit institutions in the interbank market) has generally operated at a level slightly higher than the open market operation interest rate in recent times, and the spread with the overnight interest rate has narrowed.

Some people believe that the central bank's RRR reduction has timely optimized the liquidity structure of commercial banks and financial markets, and played a role in maintaining the basic stability of money market interest rates. DR007 will continue to run smoothly around open market operating rates.

Liang Si also pointed out that although the RRR reduction is a comprehensive reduction, it has little impact on the total liquidity of the market and will not change the relationship between liquidity supply and demand. However, given the recent volatility in the bond market, the liquidity released by the RRR cut also helped ease bond market sentiment and boost investor confidence. (End)