China News Service, Beijing, February 5 (Reporter Xia Bin) The Central Bank of China’s first reserve requirement ratio cut in 2024 has officially been implemented: Starting from the 5th, the Central Bank of China will lower the deposit reserve ratio of financial institutions by 0.5 percentage points, which can provide long-term liquidity for the market. The value is about 1 trillion yuan (RMB, the same below).
In the short term, this RRR cut will help stabilize capital operations during the Spring Festival and support a "good start" for the economy in the first quarter.
Industry experts said that since the fourth quarter of 2023, the central bank has invested more than 2 trillion yuan in liquidity through MLF (medium-term lending facility) excess renewal and new PSL (collateral supplementary loan). However, according to market estimates, the liquidity before the Spring Festival There is still a certain gap in sex.
On the one hand, the government issued bonds and paid an additional 1 trillion yuan in government bonds and local refinancing special bonds in the fourth quarter of last year. At the end of the year, fiscal treasury funds increased by more than 200 billion yuan unseasonably compared with the end of the third quarter. On the other hand, new deposits and payment requirements increased last year. New deposits were 3 trillion yuan in the fourth quarter, and more than 3 trillion yuan will be added in January of previous years. Based on the statutory deposit reserve ratio of 7%, the required deposit scale is more than 400 billion yuan. In addition, the demand for cash withdrawals before the holidays may exceed 2 trillion yuan based on past years.
The above-mentioned experts said that since 2020, the central bank has arranged to cut reserve requirements on the eve of the Spring Festival every year, which can not only make up for the liquidity gap in the banking system, but also use the cash withdrawn after the holiday to continue to support bank credit extension, which has the effect of "killing two birds with one stone".
Authoritative sources said that the RRR cut will help support a "good start" for the economy in the first quarter. Against the backdrop of still uncertainties in the internal and external environment, the central bank's choice to cut the reserve requirement ratio at the beginning of the year reflects that monetary policy continues to make counter-cyclical adjustments, consolidates the positive tone of economic recovery, and provides "reassurance" to the market. Economic work in the first quarter is often the vane of the entire year's economy, and a "good start" for the economy can lay a solid foundation for the entire year.
From a long-term perspective, this RRR cut has also stabilized market expectations for full-year growth targets. Authoritative sources believe that the average growth rate of China's economy in the past two years has been about 4%, and market institutions generally predict that to achieve the gross domestic product (GDP) growth target of about 5% in 2024, policies will need to be stepped up.
Authoritative sources further stated that the reduction in the statutory deposit reserve ratio doubled from 0.25 percentage points to 0.5 percentage points. This "major" measure reflects the increased support of monetary policy and effectively maintains reasonable and sufficient liquidity in the banking system. Enhance the ability of financial institutions to serve the real economy, better tap domestic demand, stimulate market vitality, and continue to improve macroeconomic fundamentals.
Li Zhan, chief economist of the China Merchants Fund Research Department, mentioned that the base currency gap since 2023 has continued to be filled by MLF and reverse repurchase, and this RRR cut can make up for the long-term funding gap. Releasing long-term stable funds will help reduce bank capital costs and enhance banks' capital allocation capabilities to support credit.
From a policy perspective, lowering the reserve requirement ratio helps to achieve a good "combination punch" and reflect the consistency of macro policy orientation.
Industry insiders pointed out that the 2023 Central Economic Work Conference emphasized the need to enhance the consistency of macro policy orientations, strengthen policy coordination, and ensure that efforts are made in the same direction and a synergy is formed. Previously, the Ministry of Finance issued an additional 1 trillion yuan of treasury bonds, and most of the physical amount will be reflected in 2024. The central bank also added a new PSL quota of 500 billion yuan to support the construction of affordable housing, "both leisure and emergency" public infrastructure, In the transformation of urban villages, existing policies will continue to reflect the economic driving effect. "This RRR cut is also a reflection of the consistency of macro policy orientation and is expected to form a synergy with previous policies to further promote economic recovery."
It is worth noting that recently, the Ministry of Finance has also stated that it will continue to arrange a certain scale of special bonds for local governments, appropriately increase the scale of investment within the central budget, and give full play to the amplification effect of government investment. The timely reduction of the central bank's reserve requirement can also stabilize demand for subsequent series. , stabilizing growth policies to create a suitable liquidity environment.
In Li Zhan’s view, a timely RRR cut can coordinate with subsequent fiscal policy efforts. The 0.5 percentage point cut in the reserve requirement ratio reflects the active cooperation of monetary policy in maintaining loose liquidity and preparing for the launch of fiscal policy, so that special bonds and government bonds in the first quarter can be issued as soon as possible. At the same time, it will help protect banks’ net interest margins and leave some room for subsequent interest rate cuts. (over)