Or promote "two increases, one decrease, and one stabilization", and the central bank will lower reserve requirements at a "critical moment"
The People's Bank of China announced its second reserve requirement reduction within the year on the 14th. After this reduction, the weighted average reserve requirement ratio of financial institutions is about 7.4%. According to calculations, this reserve requirement reduction will release medium to long-term liquidity exceeding 500 billion yuan. Several experts said in an interview with China News Agency that such a large-scale "real gold and silver" will promote economic development and financial market stability.
The People's Bank of China has recently implemented major measures such as interest rate cuts and optimizing real estate and financial policies, and has announced its second reserve requirement reduction this year, aiming to firmly promote sustained economic recovery and recovery.
Market analysts say that this reserve requirement reduction is at a critical moment in the relay of economic recovery. In recent times, the combination of macroeconomic policies has been decisively and continuously implemented, 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 enhanced. The reduction of reserve requirements will continue to reflect the policy support effect.
After the implementation of the reserve requirement reduction, there may be a "double increase", on the one hand, the price level is expected to moderately rebound. The above market participants stated that with the recovery of market confidence and the further manifestation of policy transmission effects, the degree of economic circulation has improved. Recently, inflation has shown positive changes. In August, the consumer price index of residents changed from negative to positive year-on-year, and the year-on-year decline in national industrial producer prices has also converged for two consecutive months. This reserve requirement reduction continues to enhance financial support and expand domestic demand, which is conducive to further leveraging the early driving role of financial resources and supporting the sustained and moderate recovery of inflation indicators.
On the other hand, lowering reserve requirements can also help improve the bank's credit lending capacity. Liang Si, a researcher at the Bank of China Research Institute, believes that the statutory reserve requirement ratio has become a routine liquidity management tool, not only playing a role as a buffer pool in the financial market, but also playing a role in "supervising" the expansion of bank credit; The frozen liquidity of the statutory reserve requirement ratio will also increase the operating costs of banks.
"Therefore, the reserve requirement reduction has released liquidity with no maturity, no cost, and no need to repay. This not only helps to reduce the cost of bank funds, but also further reduces regulatory requirements for bank credit expansion, thereby improving their credit lending capabilities, especially in the medium to long term." Liang said.
"One reduction" refers to the further opening up of the downward space for financing costs in the real economy through this reserve requirement reduction. Prior to this reserve requirement reduction, the central bank had already lowered reserve requirements once and interest rates twice this year, resulting in a significant decline in financing costs for the real economy. According to data from the central bank, the interest rates for corporate loans from January to August have dropped to historical lows, and the interest rates for personal housing loans have also dropped significantly by 0.95 percentage points year-on-year. It should be noted that the net interest margin of Chinese commercial banks has significantly narrowed compared to 2019.
Wen Bin, Chief Economist of China Minsheng Bank, proposed that the central bank's further reduction of reserve requirements 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 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. Efforts to stabilize investment and employment will be intensified.
"Stability" means that money market interest rates may continue to maintain a stable trend. It should be noted that due to multiple factors such as tax payment and bond issuance, the 7-day reverse repo rate DR007 in the money market has been operating slightly higher than the open market operating rate in recent times, and the spread with overnight interest rates has narrowed.
Some argue that the central bank's recent reserve requirement reduction has timely optimized the liquidity structure of commercial banks and financial markets, playing a role in maintaining the basic stability of money market interest rates. DR007 will continue to operate steadily around open market interest rates.
Liang Si also pointed out that although this reserve requirement reduction is a comprehensive one, it has little impact on the total market liquidity and will not change the supply and demand relationship of liquidity. However, considering the recent fluctuations in the bond market, the liquidity released by the reserve requirement reduction also helps to alleviate the sentiment in the bond market and boost investor confidence.
