The second reserve requirement reduction within the year has arrived! What impact does it have on you and me? Interpretation of Financial Institutions | Loans | Impact

Release time:Apr 16, 2024 21:11 PM

According to the official website of the People's Bank of China, currently, China's economic operation continues to recover, endogenous momentum continues to strengthen, and social expectations continue to improve. In order to consolidate the foundation of economic recovery and maintain reasonable and sufficient liquidity, the People's Bank of China has decided to lower the reserve requirement ratio of financial institutions by 0.25 percentage points on September 15, 2023. After this reduction, the weighted average reserve requirement ratio of financial institutions is about 7.4%.

The People's Bank of China stated that it will accurately and effectively implement a prudent monetary policy, maintain reasonable and sufficient liquidity, maintain reasonable credit growth, match the growth rate of money supply and social financing scale with the same economic growth rate, better support key areas and weak links, balance internal and external factors, maintain basic exchange rate stability, firmly 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.

The so-called reserve requirement reduction refers to the reduction of the reserve requirement ratio, which refers to the funds prepared by financial institutions to ensure customer withdrawals and fund clearing needs. The proportion of the reserve requirement paid by financial institutions to the central bank according to regulations to their total deposits is called the reserve requirement ratio. After the reserve requirement reduction, it means that the amount of money that commercial banks are legally locked in by the central bank has decreased, and the amount of money that can be freely used has correspondingly increased.

The first reserve requirement reduction this year was in March. On March 17th, the People's Bank of China announced its decision to reduce the reserve requirement ratio of financial institutions by 0.25 percentage points on March 27th, 2023. The last reserve requirement reduction continued the "small step" operation of 2022-0.25 percentage points.

The "2023 Q2 China Monetary Policy Implementation Report" released by the People's Bank of China in August this year shows that since the beginning of this year, the People's Bank of China has maintained a reasonable growth in monetary credit, comprehensively using various methods such as reserve requirement reduction, re lending and rediscounting, medium-term lending convenience, and open market operations to invest liquidity, maintaining reasonable and sufficient liquidity, guiding financial institutions to stabilize credit support for the real economy, and enhancing the stability and sustainability of total loan growth.

Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, said that the RRR reduction was basically in line with market expectations, reflecting that the central bank increased its efforts to stabilize growth, which could boost market confidence in economic recovery and consolidate the economic recovery trend. Recent financial data shows that the effectiveness of domestic macroeconomic policies is gradually becoming apparent, and the recovery momentum of domestic demand is increasing. The central bank will further increase its efforts to stabilize growth and consolidate the momentum of economic stabilization and improvement. At the same time, the central bank will lower reserve requirements to release long-term liquidity restrictions, stabilize market liquidity, and better cooperate with the implementation of proactive fiscal policies, forming a policy synergy.

He believes that the reserve requirement reduction brings several benefits: the central bank releases low-cost, long-term stable funds through reserve requirement reduction, maintains reasonable and sufficient market liquidity, and on the one hand, helps optimize the bank's capital liability structure and stabilize debt costs; Enhance the credit lending capacity of banks, support banks to increase support for weak links and key areas of the real economy; On the other hand, the central bank's reserve requirement reduction has released a strong signal of stable growth, coupled with the recent sustained rebound in capital, which helps to boost market confidence.

Yang Delong, Chief Economist of Qianhai Open Source Fund, commented that this reserve requirement reduction has released a positive signal, indicating that the policy of stabilizing growth is constantly being implemented and gradually being implemented, effectively boosting market confidence and promoting the stabilization and recovery of the stock market.

What is the impact of reserve requirement reduction on the real estate industry? Yan Yuejin, Research Director of E-House Research Institute, believes that the current policy level provides positive support for bank mortgage investment. For example, the recent "house recognition but not loan recognition" policy has better encouraged homebuyers to reduce down payments and increase loan amounts, increasing the demand for credit investment in the market. By lowering reserve requirements, the scale and proactivity of bank loans are further enhanced, which helps to promote the vigorous development of the real estate loan business and ensure that the real estate market transaction market can be better boosted.

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