China Business Network Client, January 1st As expected by the market, the central bank’s reserve requirement cuts have been implemented!
On the 1st, the People's Bank of China announced that in order to support the development of the real economy and reduce the actual cost of social financing, the People's Bank of China decided to lower the reserve ratio of financial institutions by 0.5 percentage points (excluding financial companies, financial leasing companies and auto finance companies) on January 6, 2020.
Relevant person in charge of the central bank pointed out that this reduction of the reserve requirement ratio is a comprehensive reduction of the reserve requirement ratio, reflecting countercyclical adjustment, releasing about 800 billion yuan of long-term funds, effectively increasing the stable source of funds for financial institutions to support the real economy, reducing the capital cost of financial institutions to support the real economy, and directly supporting the real economy.
Data photo taken by China News Service
This is the first time that the reserve requirement ratio has been cut this year.
The People's Bank of China stated that the People's Bank of China will continue to implement a prudent monetary policy, maintain flexibility and moderation, not flooding the market, take into account internal and external balance, maintain a reasonable level of liquidity, and the growth of monetary credit and social financing scale is in line with economic development, stimulate the vitality of market entities, and create a suitable monetary and financial environment for high-quality development and supply-side structural reform .
Relevant person in charge of the central bank pointed out in response to reporters' questions that the reduction in the reserve requirement ratio has maintained a reasonable level of liquidity, which is conducive to achieving the growth of monetary credit and social financing scale adaptation to economic development, creating a suitable monetary and financial environment for high-quality development and supply-side structural reform, and using market-oriented reform methods to clear monetary policy transmission, which is conducive to stimulating the vitality of market entities, further giving full play to the decisive role of the market in resource allocation, and supporting the development of the real economy.
Relevant persons in charge of the central bank also pointed out that the reserve requirement ratio cut has increased the source of funds for financial institutions, large banks should focus on their main responsibilities and main businesses, and should actively use the reserve requirement ratio cut funds to increase support for small and micro enterprises and private enterprises. In this comprehensive reduction of reserve requirement ratio, only small and medium-sized banks such as urban commercial banks operating in the area of provincial administrative regions, rural commercial banks serving counties, rural cooperative banks, rural credit cooperatives and rural banks received more than 120 billion yuan in long-term funds, which is conducive to enhancing the financial strength of small and medium-sized banks based in the local area and returning to their original origin to serve small and micro enterprises. At the same time, the reduction of the reserve requirement ratio reduces the cost of banks' capital by about 15 billion yuan per year. Through bank transmission, the actual cost of social financing can be reduced, especially the financing costs of small and micro enterprises.
According to industry insiders, the effect of this reserve requirement ratio cut can be said to be "a killing multiple goals at one stroke".
First, the Spring Festival is approaching, and the market capital demand brought by residents' cash withdrawals is large. Cutting the reserve requirement ratio can release sufficient liquidity and meet the peak capital demand before the Spring Festival.
The second is that the reserve requirement ratio cut can release medium- and long-term funds to banks, which is conducive to banks reducing capital costs, thereby driving the LPR quotation and real loan interest rate to lower the financing costs of the real economy, and achieve the purpose of reducing the financing costs of the real economy.
Third, banks usually focus on lending projects at the beginning of the year, and the issuance of local bonds is expected to accelerate in the first quarter of 2020. The reduction in the reserve requirement ratio will help provide sufficient financial support for bank credit issuance and local bond issuance.
The orientation of prudent monetary policy does not change
In the past 2019, the central bank has cut the reserve requirement ratio three times.
On January 4, 2019, the central bank lowered the reserve ratio of financial institutions by 1 percentage point, and implemented it in two installments on January 15 and January 25, 2019, with a total of approximately 1.5 trillion yuan of funds released.
On May 15, 2019, the central bank implemented a low preferential deposit reserve ratio for small and medium-sized banks focusing on local and serving counties, releasing about 280 billion yuan of long-term funds, all of which were used to issue loans to private and small and micro enterprises.
In addition, on September 6, 2019, the central bank announced a comprehensive reduction of the reserve requirement ratio of financial institutions by 0.5 percentage points; and an additional targeted reduction of the reserve requirement ratio of urban commercial banks that operate only in provincial administrative regions was 1 percentage point, and implemented in two installments on October 15 and November 15, 2019. This cut in the reserve requirement ratio has increased the long-term stable source of funds for commercial banks, and released a total of about 900 billion yuan of long-term funds.
In the past fewer reserve requirement cuts, the central bank mentioned that it supports the development of the real economy such as small and micro enterprises, private enterprises, etc., which shows the country's concerns and deployments to reduce the comprehensive financing costs of small and micro enterprises.
It is worth noting that the central bank has repeatedly reiterated that the reduction of the reserve requirement ratio does not mean that the orientation of prudent monetary policy has changed. On January 4, 2019, the central bank pointed out that the reduction of the reserve requirement ratio is still a targeted regulation and not a flood of money. The prudent monetary policy orientation has not changed. The policy of lowering the reserve requirement ratio is implemented in two times, which is in line with the pace of cash injection before the Spring Festival, which is conducive to the reasonable abundance of liquidity in the banking system, and also takes into account internal and external equilibrium, which helps to maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.
In this latest announcement, the central bank also stated that the reserve requirement ratio cut is hedging with cash injections before the Spring Festival. The total liquidity of the banking system will remain basically stable and remain flexible and moderate, not flooding the market, reflecting a scientific and prudent grasp of the countercyclical adjustment of monetary policy, and the prudent monetary policy orientation has not changed.
Data photo taken by China News Service
reserve requirement cut is coming, will interest rates be cut in the future?
After the reserve requirement ratio cut is implemented, will interest rates be cut in the future? In fact, industry insiders believe that this round of interest rate cut cycle has started.
On November 5, 2019, the central bank carried out medium-term lending facility (MLF) operations of 400 billion yuan, which was basically the same as the maturity on the day, with a term of 1 year, and the winning rate fell by 5 basis points from the previous period to 3.25%. This is the first time the central bank has lowered the MLF operation rate in the past four years.
Wang Qing, chief macro analyst of Oriental Jincheng, said that focusing on the macroeconomic operating environment in 2020 and the strong rigid growth target, this means that this round of interest rate cut cycle has started. In the future, MLF interest rates will also undergo a "small steps and slow moves" continuous downward process, and LPR is expected to continue to be lowered in 2020.
As for the "rate cut" at that time, Wen Bin, chief researcher of China Minsheng Bank, analyzed that since the beginning of this year, as the global economic growth slowed down, central banks in many countries have cut interest rates one after another. The Federal Reserve has cut interest rates three times in a row this year. The interest rate spread of China-US 10-year treasury bond yields has further widened, and the RMB exchange rate against the US dollar has stabilized and rebounded, opening up space for the central bank to cut interest rates.
Looking forward to the new year, CITIC Securities believes that reducing costs is still a major goal of monetary policy, and there is still room for loose space for cooperation between quantity and price in the future, and there is room for continued interest rate cuts in 2020.
CICC predicts that CPI will be at a high level in the first half of 2020. Although countercyclical policies need to be increased urgently, there is currently limited room for monetary relaxation by mid-2020, and the pace of policy easing is expected to accelerate from the second half of 2020 to the first half of 2021. (China Business Network APP)
Copyright of China Business Network. No unit or individual may reproduce, excerpt or use it in other ways without written authorization.
