Monetary policy continues to strengthen and stabilize growth
On September 14th, the People's Bank of China announced its decision to lower the reserve requirement ratio for financial institutions by 0.25 percentage points on September 15th. After interest rate cuts and optimizing real estate financial policies, the central bank has comprehensively lowered reserve requirements for the second time this year, demonstrating the firm determination of monetary policy to promote sustained economic recovery and recovery.
This reserve requirement reduction is at a critical moment in the relay of stable growth. Recently, the combination of macroeconomic policies has decisively taken action, with continuous efforts in finance, taxation, real estate, and monetary policies. Market expectations have significantly improved, but the resilience of economic recovery still needs to be strengthened. According to calculations, this reserve requirement reduction can release medium - and long-term liquidity exceeding 500 billion yuan, which will effectively stimulate financial institutions to increase their investment in entities, and the macroeconomic situation is expected to show more positive changes.
This reserve requirement reduction may seem unexpected, but it is actually reasonable. By mid September, market liquidity was facing multiple factors such as local bond issuance, peak tax periods, and regulatory assessments. Firstly, the issuance of local bonds has been accelerating. Following the issuance of 1.2 trillion yuan in August, more than 1 trillion yuan will be issued in September, and financial institutions will withdraw a large amount of liquidity from their subscription payments. Secondly, the tax payment peak is usually around the 15th of each month, and the liquidity pressure will gradually increase. Again, September is the end of quarter month, and regulatory assessments such as liquidity indicators will also increase the liquidity demand of financial institutions. After the above factors are combined, the changes in short-term fund supply and demand in the market increase. Monetary policy, while balancing the supply of medium and long-term liquidity, selects the most urgent time point for liquidity demand to increase supply, reflecting the care for the market.
This reserve requirement reduction will enhance the ability and momentum of financial support to expand domestic demand. Since the beginning of this year, the central bank has lowered reserve requirements once and interest rates twice, resulting in a significant decline in financing costs for the real economy. In the first 8 months, the interest rate of corporate loans has dropped to a historically low level since statistics began, and the interest rate of personal housing loans has significantly decreased by 0.95 percentage points year-on-year. However, it should also be noted that the net interest margin of commercial banks in China has significantly narrowed compared to 2019. The central bank has once again lowered the reserve requirement ratio, which 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 for loan interest rates on the asset side, promote the stable and moderate reduction of enterprise financing and resident credit costs, and the ability of finance to yield benefits to entities is expected to be further improved.
This reserve requirement reduction will also promote exchange rate stability. On the one hand, the reserve requirement reduction has enhanced the stability of funds in the banking system, optimized the liquidity structure, stimulated market vitality, further consolidated the strength of monetary and credit support for entities, and created a suitable monetary and financial environment for the sustained recovery of the economy. The continuous improvement of fundamentals will ultimately be reflected in the exchange rate; On the other hand, the reserve requirement reduction this time is still 0.25 percentage points, with a moderate total amount. The monetary policy has not been significantly relaxed, and there will be no "flood irrigation". Market interest rates will remain stable, which will effectively support the stabilization and recovery of the renminbi.
Overall, the policy effects of two interest rate cuts and two reserve requirement cuts this year will continue to be released in a pulse like manner. Next, a prudent monetary policy will continue to be precise and effective, maintain reasonable and sufficient liquidity, match the growth rate of money supply and social financing scale with the economic growth rate, and better support key areas and weak links. At the same time, we should balance both internal and external factors, maintain basic exchange rate stability, support the sustained recovery and improvement of the real economy, and promote the effective improvement of quality and reasonable growth of quantity in the economy.