Original title: Fully cut RRR and release 1 trillion to create favorable conditions for real economy restoration
Every time reporter Xiao Shiqing Every time editor Liao Dan
Two days after the State Council executive meeting announced the timely use of monetary policy tools such as RRR cuts, the central bank’s RRR cut came as scheduled.
On July 9, the People’s Bank of China issued an announcement stating that it decided to lower the deposit reserve ratio of financial institutions by 0.5 percentage points on July 15, 2021 (excluding financial institutions that have implemented a 5% deposit reserve ratio). After this reduction, the weighted average deposit reserve ratio of financial institutions was 8.9%.
The central bank stated in the announcement that the prices of some commodities have continued to rise since the beginning of this year, and some small and micro enterprises are facing operating difficulties such as rising costs. China adheres to the stability and effectiveness of monetary policy. Big support for small and micro enterprises.
Macro analyst Zhou Maohua told the “Daily Economic News” reporter: “The central bank’s overall RRR cut exceeded market expectations, mainly due to the strong performance of the released financial data and the good economic recovery.”
Zhou Maohua believes that the central bank’s RRR cut to release long-term, low-cost funds will help strengthen the ability to create money and credit credit, support the real economy, stimulate the vitality of micro entities, ensure market entities, stabilize employment, and promote domestic demand. Second, the foundation for economic recovery has been further consolidated, corporate earnings prospects improved, and market liquidity has further improved, which will help boost market risk appetite.
Why is the RRR cut?
Regarding the reasons for the RRR cut, the relevant person in charge of the People’s Bank said in response to reporters that the purpose of the RRR cut is to optimize the capital structure of financial institutions, improve financial service capabilities, and better support the real economy. Specifically: First, while maintaining reasonable and abundant liquidity, strengthen the capital allocation capabilities of financial institutions to create a suitable monetary and financial environment for high-quality development and supply-side structural reforms;
The second is to adjust the financing structure of the central bank, effectively increase the long-term stable funding sources for financial institutions to support the real economy, and guide financial institutions to actively use the RRR cut funds to increase support for small and micro enterprises;
The third is that the RRR cut has reduced the capital cost of financial institutions by about 13 billion yuan per year, and the transmission of financial institutions can promote the reduction of social comprehensive financing costs.
Macro analyst Zhou Maohua believes that there are two reasons for the RRR cut: one is to relieve the pressure on bank liabilities by releasing low-cost, long-term funds, and to improve the money creation and credit supply capabilities of some banks; the second is to reduce the cost of debt of some banks and guide some banks to continue to do so. Benefits from the real economy provide some banks with opportunities to reduce corporate credit costs and hedge against the impact of industrial raw material prices on the operations of some companies.
The chief fixed income analyst of CITIC Securities said in an interview with the “Daily Economic News” reporter: “Considering the situation of the executive meeting of the State Council, the RRR cut is mainly concerned about the problem of rising costs for small, medium and micro enterprises, including the pressure of weakening economic momentum. Costs need to be further reduced. From an economic point of view, the government is concerned about the decline in the export industry and the real estate industry in the second half of the year.”
Does it change the tone of monetary policy?
It is worth noting that according to the person in charge of the central bank, the RRR cut is a comprehensive reduction. Except for some county-level legal person financial institutions that have implemented a 5% deposit reserve ratio, the deposit reserve ratio is generally reduced by 0.5 for other financial institutions. Percentage points, the RRR cut released about 1 trillion yuan in long-term funds. Considering the amount of funds released by the RRR cut, does it mean that the orientation of prudent monetary policy will change?
In response, the relevant person in charge of the central bank said: “The orientation of prudent monetary policy has not changed.” When the People’s Bank of China responded to the epidemic in 2020, the People’s Bank of China insisted on implementing normal monetary policies. After May, the intensity gradually became normal, and the first half of this year has basically returned to the pre-epidemic period. Normality. The RRR cut is a routine operation after the monetary policy returns to normal. A part of the funds released will be used by financial institutions to return the maturing medium-term loan facility (MLF), and part of the funds will be used by financial institutions to make up for taxes in mid-to-late July. The liquidity gap caused by the peak period will increase the proportion of long-term funds of financial institutions, and the total liquidity of the banking system will remain basically stable. At present, my country’s economy is stable and improving. The People’s Bank of China insists on the stability and effectiveness of monetary policy, adheres to normal monetary policy, and does not engage in flooding.
At the same time, many market analysts also told reporters: “The central bank’s RRR cut will not change the tone of the prudent monetary policy.”
In an interview with reporters, Wang Qing, chief macro analyst at Oriental Jincheng, said that the RRR cut will encourage banks to provide credit, and in the second half of the year, they will enter a “stable credit” process. In one paragraph, this will enhance the resilience of economic growth in the second half of the year. Considering that the target of this RRR cut is mainly to cope with the adverse impact of the high increase in PPI on downstream small and micro enterprises, and the PPI will peak and fall in the second half of the year, it is preliminary estimated that the possibility of continuous implementation of RRR cuts in the future is very small. The policy will maintain a sound and neutral tone.
Zhou Maohua also said: “The central bank’s RRR cut will not change the tone of the prudent monetary policy. First, the domestic economy is recovering steadily; second, the domestic monetary and credit environment remains reasonable and appropriate; third, the domestic monetary policy needs to balance steady growth and prevent risks.”
Wen Bin, the chief researcher of Minsheng Bank, also said: “There is room and necessary for the RRR cut this time. It does not mean that the monetary policy will be shifted. The tone of the prudent monetary policy has not changed.” From the perspective of space, the June price data released on the 9th showed that The year-on-year growth rates of CPI and PPI both fell. The peak of PPI this year has passed, and prices in the second half of the year are generally controllable, opening up room for RRR cuts. At the same time, after the RRR cut, the weighted average deposit reserve ratio of financial institutions is 8.9%, which is still at a reasonable level.
What impact will it have on the financial market?
On July 7, the State Council executive meeting chaired by Premier Li Keqiang decided that in view of the impact of commodity price increases on the production and operation of enterprises, it is necessary to maintain the stability and effectiveness of monetary policy on the basis of not engaging in flood irrigation. Use monetary policy tools such as RRR cuts in a timely manner to further strengthen financial support for the real economy, especially for small, medium and micro enterprises, and promote a steady decline in overall financing costs.
The central bank also pointed out in the announcement that since the beginning of this year, the prices of some commodities have continued to rise, and some small and micro enterprises are facing operating difficulties such as rising costs. China adheres to the stability and effectiveness of monetary policy, and does not engage in flooding, but precise force. Increase support for small and micro enterprises.
So what impact will the RRR cut have on the financial market? Oriental Jincheng pointed out in the research report that this RRR cut is expected to have a cumulative effect on the previous strengthening of deposit interest rate management, effectively guiding small and micro enterprises to reduce the comprehensive cost of credit steadily, and creating a favorable financial environment for the restoration of the real economy in the second half of the year.
Zhou Maohua believes that the RRR cut will first benefit the real economy. The central bank’s RRR cut to release long-term, low-cost funds will help strengthen the ability to create money and credit credit, support the real economy, stimulate the vitality of micro entities, ensure market entities, stabilize employment, and promote domestic demand. Second, the foundation for economic recovery has been further consolidated, corporate earnings prospects improved, and market liquidity has further improved, which will help boost market risk appetite.
He clearly stated that the RRR cut is very strong this time, and the scale of the RRR cut has reached the level during the epidemic. “So, I think after this RRR cut, the entire interest rate curve will drop significantly.”