Reduce the RRR and cut interest rates
People’s Daily Online, Beijing, September 27 (Reporter Huang Sheng) The People’s Bank of China (hereinafter referred to as the "central bank") has decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage points from September 27, 2024 (excluding financial institutions that have implemented the 5% deposit reserve ratio). After this reduction, the weighted average deposit reserve ratio of financial institutions is about 6.6%.
At the same time, the central bank announced that in order to strengthen the countercyclical adjustment of monetary policy and support stable economic growth, the operating interest rate of 7-day reverse repurchase in the open market will be adjusted from the previous 1.70% to 1.50% from September 27. The operating rates of 14-day reverse repurchase and temporary positive and negative repurchase in the open market will continue to be determined by adding and subtracting points on the operating rate of 7-day reverse repurchase in the open market, and the range of adding and subtracting points will remain unchanged.
On the impact of RRR cuts, Pan Gongsheng, governor of the central bank, said that RRR cuts are equivalent to directly providing low-cost and long-term funds for banks, while medium-term lending facilities and open market operations are the main ways for the central bank to provide short-term funds to commercial banks, and the reduction of interest rates will also reduce the cost of bank funds. In addition, it is expected that the loan market quotation interest rate and deposit interest rate will decline symmetrically. The repricing effect caused by the previous interest rate self-discipline mechanism to guide the downward trend of deposit interest rate will also accumulate.
"After the implementation of the RRR cut policy, the average deposit reserve ratio of the banking industry is about 6.6%, which still has some room compared with the central banks of major international economies. In terms of the deposit reserve ratio, there are still three months before the end of the year, and we may further reduce it by 0.25-0.5 percentage points according to the situation. " Pan Gongsheng said.
"After several rounds of careful quantitative analysis and evaluation, the technical team of the central bank found that the impact of this interest rate adjustment on the bank’s income is neutral, and the bank’s net interest margin will remain basically stable." Pan Gongsheng said.
Ceng Gang, deputy director of the National Finance and Development Laboratory, told reporters that the real estate financial policies, such as the RRR cut and the interest rate cut on deposits and mortgages, formed a "combination boxing". The reduction of the interest rate of existing mortgage loans will have a certain impact on banks in the short term, but on the debt side, the central bank will help banks cope with the impact of the reduction of loan interest rates, help banks reduce the cost of capital, and improve the medium and long-term funding sources of banks. From a broader market perspective, lowering the deposit reserve ratio and guiding the loan market quotation interest rate and deposit interest rate to go down simultaneously will also further push down the interest rate level of the entire financial market and help reduce the financing cost of the real economy.
The research report of China Merchants Securities believes that the central bank chose to cut interest rates by 0.2 percentage points in the context that the current net interest margin of banks is lower than the warning line, which reflects that caring for the economy is the main demand of the current policy. At the same time, the central bank chose to lower the 7-day reverse repurchase operating rate, further highlighting the current intention to dilute the color of MLF interest rate policy. The unexpected RRR cut not only releases liquidity, but also reflects the care for bank funds.
In addition, the Political Bureau of the Communist Party of China (CPC) Central Committee held a meeting on September 26th to analyze and study the current economic situation and plan the next economic work. The meeting pointed out that it is necessary to intensify the countercyclical adjustment of fiscal and monetary policies, reduce the deposit reserve ratio, and implement a vigorous interest rate cut. Zou Lan, director of the monetary policy department of the central bank, said that the central bank will implement the relevant arrangements of the meeting and accelerate the introduction of documents on financial incremental policies. On the basis of lowering the deposit reserve ratio by 0.5 percentage point, it will be further lowered this year depending on the market liquidity. We will lower the policy interest rate by 0.2 percentage points, continue to guide the quotation interest rate and deposit interest rate in the loan market to go down simultaneously, and promote commercial banks to lower the interest rate of existing mortgage loans. We will do a good job in implementing various policy measures and effectively promote the economic recovery.
Some experts also believe that this policy interest rate reduction is the largest in the past four years, which is an important embodiment of supportive monetary policy and will reduce the comprehensive financing cost of society through transmission. In addition, the policy interest rate is lowered by 20 basis points, which reflects the requirement of "strength". Under the market-oriented interest rate regulation mechanism, the benchmark interest rate of various markets will be lowered, creating a good monetary and financial environment for stable economic growth and high-quality development.
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