Original title: The central bank’s trillion yuan RRR cuts to strengthen inter-cyclical adjustments and stable monetary policy remains unchanged
Securities Times reporter Sun Lulu Wang Junhui
On December 6, the central bank announced that in order to support the development of the real economy and promote a steady and steady decline in comprehensive financing costs, it decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage points on December 15, 2021 (excluding the implemented 5% Deposit reserve ratio of financial institutions).
The relevant person in charge of the central bank said that the purpose of this RRR cut is to strengthen cross-cycle adjustment, optimize the capital structure of financial institutions, improve financial service capabilities, and better support the real economy. The first is to effectively increase the long-term stable funding sources of financial institutions to support the real economy while maintaining reasonable and abundant liquidity, and enhance the financial institutions’ ability to allocate funds. The second is to guide financial institutions to actively use the RRR cut funds to increase support for the real economy, especially for small, medium and micro enterprises. The third is that the RRR cut has reduced the funding cost of financial institutions by about 15 billion yuan per year, and the transmission of financial institutions can promote the reduction of social comprehensive financing costs.
Minsheng BankLead researcher Wen Bin believes that at this time there is not only room for the RRR cut, but it is also necessary. On the one hand, my country’s economic work next year will face considerable pressure and challenges. The RRR cut is a concrete manifestation of a good cross-cycle adjustment. On the other hand, the overall RRR cut by 0.5 percentage points will help optimize the funding structure of the banking system, reduce the funding costs of banking institutions, encourage and guide financial institutions to further increase support for the real economy, and reduce the financing costs of the real economy.
This round of RRR cut further confirms that the policy supports the renewed efforts of wide credit. According to the central bank’s calculations, the RRR cut is a comprehensive reduction. Except for some county-level legal person financial institutions that have implemented a deposit reserve ratio of 5%, the deposit reserve ratio for other financial institutions is generally reduced by 0.5 percentage points. Most of the financial institutions assessed for targeted financial RRR cuts have met the assessment standards for supporting agriculture and small businesses (including individual industrial and commercial households), and the policy objectives have been achieved. The relevant financial institutions uniformly implement the most favorable deposit reserve ratio, so this time the RRR is reduced. A total of about 1.2 trillion yuan was released for long-term funds.
It is worth noting that with the two rounds of overall RRR cuts in July and December this year, the market generally believes that the motivation for lowering the loan market quoted interest rate (LPR) is sufficient, and there is a possibility of “interest rate cut” in the short-term LPR interest rate.
Everbright SecuritiesChief fixed income analyst Zhang Xu told the Securities Times reporter that LPR consists of two parts: the medium-term lending facility (MLF) interest rate and the increase rate. The current reserve ratio decline and the period when the MLF interest rate remains unchanged is more conducive to reducing the LPR increase rate. The extent of the increase mainly depends on factors such as the capital cost of each quoting bank, market supply and demand, and risk premium. In fact, some factors affecting LPR have changed in the past period of time.
“The RRR cut and the RRR cut in July this year have directly reduced financial institutions’ capital costs by approximately 28 billion yuan per year. Taking into account the indirect effects of the RRR cut, it has formed a strong impetus to the decline of LPR.” Zhang Xu said.
Historically, the announcement of RRR cuts will have varying degrees of impact on the capital market. Zheng Houcheng, director of the Yingda Securities Research Institute, told the Securities Times reporter that on the one hand, my country’s exports are likely to show a higher growth rate from November to December, and the two-year average growth rate of total industrial profits is likely to remain at a relatively high level. The decline in this background quasi reflects the determination to stabilize growth. While releasing liquidity, it also enhances market risk appetite, which is bullish for the A-share market. On the other hand, it is conducive to alleviating the liquidity and cost pressures of private small and micro enterprises, forming a strong support for the profit growth of private industrial enterprises, and benefiting more technology growth stocks. In addition, in the context of the transition from passive replenishment of inventory to active destocking in my country, that is, the macroeconomic pressure, there is greater uncertainty in the superimposed epidemic. The RRR cut will underpin the macro economy and increase market liquidity. It is expected In the short term, the bond yield to maturity is likely to decline.
Although the overall RRR cut has released trillions of funds to boost market confidence, the central bank once again emphasized that the orientation of prudent monetary policy has not changed. The relevant person in charge of the central bank said that the RRR cut is a regular operation of monetary policy. A part of the released funds will be used by financial institutions to return MLF that expires, and some will be used by financial institutions to supplement long-term funds to better meet the needs of market entities. . The People’s Bank of China adheres to the normal monetary policy, maintains policy continuity, stability, and sustainability, does not engage in flooding, and creates a suitable monetary and financial environment for high-quality development and supply-side structural reforms.
Wen Bin also said that the RRR cut is not about a shift in monetary policy, but on the premise of ensuring reasonable and sufficient liquidity, to better play the role of structural monetary policy tools, and increase the impact on small and medium-sized enterprises, green development, and technological innovation. The support in key areas and weak links has promoted the economy to climb through the hurdles, and promote the economic operation in a reasonable range.
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