On December 5, the RRR cut was officially implemented. Industry experts said that with the help of the RRR cut and the release of large amounts of medium and long-term funds, liquidity is expected to remain reasonably sufficient, and a smooth New Year’s Eve is expected. In order to avoid short-term excess liquidity, at the same time as the RRR cut is implemented, the People’s Bank of China is expected to reduce the intensity of open market operations and maintain stable liquidity at the end of the year.
Better meet the medium and long-term credit needs of enterprises
According to recent news from the People’s Bank of China, on December 5, the People’s Bank of China officially lowered the deposit reserve ratio of financial institutions by 0.25 percentage points (excluding financial institutions that have implemented a 5% deposit reserve ratio), releasing long-term funds of about 500 billion yuan.
Liang Si, a researcher at the Bank of China Research Institute, said that the funds released by the RRR cut have no cost and no maturity date, which provides financial institutions with a long-term, cost-free source of funds, helps to improve the ability of financial institutions to extend credit, and provides enterprises with sufficient funds. Medium and long-term credit support.
“With the help of RRR cuts and the release of large amounts of medium and long-term funds, it is expected that liquidity will remain loose before the New Year’s Eve, and there is a greater certainty that interest rates in the money market will decline.” Wen Bin, chief economist of Minsheng Bank, said that caring for market liquidity At the same time, the implementation of RRR cuts will help improve the credit extension capabilities of financial institutions and better meet the medium and long-term credit needs of enterprises.
The funds released by the RRR cut have no interest cost, which can help financial institutions ease their financial burden, which will also be transmitted to the real economy, reducing the interest cost of enterprises at the same time, and thus expanding the space for better reduction of entity financing costs.
“The RRR cut reduces the capital cost of financial institutions by about 5.6 billion yuan per year, which can continue to reduce the entity’s financing costs and expand space, and ensure that profits remain at a relatively reasonable level.” Wen Bin said.
Dong Ximiao, chief researcher of China Merchants Union Finance, said that the RRR cut has been implemented and the cost of bank funds has been reduced. It is expected that the loan market quotation rate (LPR) on December 20, especially the LPR with a period of more than 5 years, will drop. This will help boost residents’ willingness and ability to consume housing, and help the real estate market develop steadily and healthily.
Liquidity remains reasonably sufficient
“With the implementation of this RRR cut, market liquidity is expected to remain reasonably sufficient, and a stable New Year’s Eve is expected.” Zhou Maohua, a macro researcher at the Financial Market Department of China Everbright Bank, said.
By convention, RRR cuts and open market operations will be used in conjunction. This means that at the same time as the RRR cut is implemented, the People’s Bank of China will reduce the intensity of open market operations to avoid excess liquidity in the short term and maintain stable liquidity at the end of the year.
It is worth noting that structural monetary policy tools are also making precise efforts. “The incentive compatibility mechanism of structural monetary policy tools can accurately drip-fed the real economy and release base money, maintain reasonable and sufficient liquidity in the banking system, and balance policy advances and redundancy.” Ming Ming, chief economist of CITIC Securities, said.
As an example of the strength of structural monetary policy tools, recently, mortgage supplementary loans (PSL) have shown a net release trend for three consecutive months. According to data disclosed by the People’s Bank of China, in November 2022, the China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China will add a net increase of PSL of 367.5 billion yuan.
In addition, structural tools will continue to be delivered. Dong Qi, chief macro analyst at Guotai Junan Securities, said that considering the use of carbon emission reduction support tools and support for clean and efficient use of coal, technological innovation, inclusive pensions, transportation and logistics, and other special refinancing throughout the year, it is expected that the remaining quota will be gradually implemented. , superimposed on long-term agricultural support small re-loans, rediscount and other tools, it is expected that about 200 billion yuan of structural tools will be launched in December.
Lian Ping, dean of the Zhixin Investment Research Institute, said that while making good use of aggregate tools, he will continue to innovate and use structural tools to make up for the lack of aggregate tools, which will help better leverage monetary policy to support and serve the real economy and promote the economy. Features for high-quality development.
Supported by multiple factors
Industry insiders believe that, in addition to giving full play to the dual functions of monetary policy tools in terms of total volume and structure, factors such as controllable pressure on government bond issuance and a drop in government deposits from the previous month will also support the maintenance of reasonable and sufficient liquidity at the end of the year.
“December is a big month for traditional fiscal funds. The continued efforts of fiscal policy will keep the scale of general fiscal net expenditure at a high level, and the pressure of government bond issuance is controllable, and government deposits may fall month-on-month, which are expected to become the main support factors for liquidity. ” said Pang Ming, Chief Economist for Greater China at Jones Lang LaSalle.
In Dong Qi’s view, there is no liquidity gap in December, considering factors such as changes in foreign exchange holdings, changes in fiscal deposits, pressure on payment standards, and open market maturities. “If the People’s Bank of China does not conduct any open market operation hedging, there will be a liquidity surplus of about 436 billion yuan in December; if the medium-term lending facility (MLF) operation is fully hedged, combined with reverse repurchase and structural monetary policy operations, December liquidity There is a surplus of about 1,237.5 billion yuan in liquidity; if MLF shrinks and continues in December, there will be a surplus of about 937 billion yuan in liquidity.” Dong Qi said.
On the whole, Pang Ming said that the liquidity gap in December is not obvious and controllable, and the liquidity will remain stable, which is conducive to protecting the recovery of financing demand in the real economy and helping to stabilize the economy. A package of policies and subsequent measures have been fully implemented and effective.