China’s monetary policy still has room to cut the reserve requirement ratio (RRR) and interest rates in order to consolidate the positive economic recovery, according to an article published by the China Securities Journal. Experts believe that there is sufficient scope for monetary policy to increase regulation and control, and relevant departments are expected to use tools such as RRR cuts and interest rate cuts flexibly based on changes in the economic situation.
As the “wide credit” continues to advance, experts predict that the central bank may implement another RRR cut in the third quarter to boost aggregate social demand. Yu Yongding, a member of the Chinese Academy of Social Sciences, highlighted the need to further relax monetary policy and improve the monetary policy transmission mechanism in the face of insufficient aggregate demand.
Maintaining stable growth of the currency aggregate has become the consensus in the market. Lian Ping, Chief Economist and Dean of the Research Institute of Zhixin Investment, believes that the statutory deposit reserve ratio is expected to continue to decrease in the third quarter to increase liquidity support for financial institutions and hedge medium-term lending facility (MLF) expirations in the coming quarters.
Luo Zhiheng, president of Yuekai Securities Research Institute, stated that the current weighted average statutory deposit reserve ratio of commercial banks still has room for further reduction. Timely and moderate RRR cuts will help maintain reasonable liquidity, promote credit growth, and lower corporate financing and resident credit costs.
Zou Lan, director of the Monetary Policy Department of the People’s Bank of China, emphasized the need to increase macro-control efforts and maintain reasonable and sufficient liquidity in the banking system. Zou outlined various monetary policy tools such as the deposit reserve ratio, medium-term lending facilities, and open market operations that will be utilized to achieve these goals.
In addition to quantitative tools, experts believe that price-based monetary policy tools may continue to be used. Yu Ze, a professor at Renmin University of China, suggested further interest rate cuts to reduce corporate financing costs and interest payments. However, it is important to consider the bank’s net interest margin and ensure a normal bank net interest margin space to prevent excessive risk accumulation.
Lian Ping mentioned that in the second half of the year, the central bank may moderately lower interest rates on structural tools such as re-lending for agriculture and small businesses, and special re-lending. Sun Binbin, chief fixed-income analyst at Tianfeng Securities, predicted that the window for rate cuts may appear as early as the fourth quarter.
Unblocking the interest rate transmission mechanism is also crucial. Yu Ze highlighted the need for market-oriented reforms to ensure the full function of the market-based interest rate formation and transmission mechanism.
Experts also emphasized the flexible use of structural monetary policy tools. Zou Lan stated that the stock balance of policy tools whose implementation period has ended will continue to play a role in supporting related fields. If necessary, new policy tools can be created to provide precise financial support for key areas and weak links in the high-quality development stage.
Lian Ping suggested the possibility of moderate innovation and the introduction of structural tools such as refinancing to better coordinate fiscal policies and support weak links in the economy. Political Commissar Lu, Chief Economist of Industrial Bank, outlined three areas for innovation in structural monetary policy tools, including technological innovation, infrastructure construction related to new energy, and interest rate reduction tools for public facility loans.
Overall, experts believe that China’s monetary policy still has room for further adjustments and the flexible use of tools such as RRR cuts, interest rate cuts, and structural monetary policy tools will be crucial in maintaining stable growth and supporting key areas of the economy.