On April 17, the People’s Bank of China decided to cut some financial institutions from April 25Deposit reserveRate to facilitate the replacement of medium-term loans. Experts believe that this move will lower the cost of bank funds and corporate financing costs, will help the bond market and help stabilize the stock market and the macro economy.
Which banks are involved in this move?
According to the Central Bank notice, on the 25th, the RMB will be loweredDeposit reserve ratioA percentage point is related to large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks, and foreign banks.
At present, the benchmark grades for these types of banks' reserve requirements are relatively high at 17% or 15%, and institutions that borrow MLF are among these types of banks.
At the same time, the Central Bank requested that on the same day, the banks mentioned above would each use the funds released by the RRR cut to repay the medium-term borrowing facilities (MLF) they borrowed from the central bank in accordance with the order of “first borrow first, return first”.
For the central bank’s operation, Pan Xiangdong, chief economist of New Era Securities, believes that MLF cannot completely replace the benchmark. Specifically, the MLF has a time limit that will increase the liquidity stratification, and the MLF will need to pay interest, and financial institutions will pass the cost to the company. Replacing the MLF by lowering the standard will reduce the cost of interest paid by commercial banks, which will help reduce the cost of corporate financing.
Why is this point in time implemented?
The relevant person in charge of the central bank stated that at present, China's small and micro enterprises still face the problems of financing difficulties and expensive financing. In order to increase the support for small and micro enterprises, some central bank loan funds can be replaced by appropriately reducing the statutory deposit reserve ratio, further increasing the stability of the banking system funds, optimizing the liquidity structure, and appropriately releasing incremental funds.
Pan Xiangdong told reporters that the reason for not lowering standards in the past two years was to prevent risks. However, after deleveraging, China’s macro leverage ratio has been controlled. The RMB exchange rate has been relatively stable since 2017, and has even appreciated. China’s economic and financial risks have been well controlled and monetary policy has been reduced.
According to Zhang Ming, chief economist at Ping An Securities, the central bank's move is a "neutral" cut. He believes that the timing of the central bank's liberalization of liquidity operations ahead of schedule makes the probability of tightening financial supervision policies that may have occurred in the second quarter decline.
The central bank said that this move would release about 400 billion yuan in incremental funds.
How much incremental funds will be released?
The relevant person in charge of the central bank stated that with the data at the end of the first quarter of 2018, the reimbursement of MLF on the day of operation was about 900 billion yuan, while the release of incremental funds was about 400 billion yuan. Most of the incremental funds were released to city commercial banks and non-county rural commercial banks.
The person in charge pointed out that this measure will increase the long-term funding and the cost of bank funds will be reduced. The replacement of MLF has reduced the interest payment cost of commercial banks, which will help reduce the cost of corporate financing. The incremental funds released have increased the low-cost funding sources for small and micro business loans.
Pan Xiangdong also pointed out that the cost reduction is the focus of structural reforms on the supply side this year, and reducing the cost of corporate financing is a top priority. Prior to this, the central bank continued to implement targeted downward adjustments. However, liquidity is limited, and the financing difficulties and financing problems of small and micro enterprises have still not been effectively solved. This reduction can increase support for small and micro enterprises.
What is the impact on the financial markets such as the stock market?
Zhang Ming said that the direct effect of the central bank’s move is to benefit the bond market and help stabilize the stock market and the macro economy. Pan Xiangdong expressed the same view, believing that this reduction will help stabilize the economy and benefit the capital market.
Pan Xiangdong added: First, the RRR cut will ease the pressure on the bank's debt, reduce corporate financing costs, increase investment, and increase the long-term low growth in manufacturing investment. Second, the RRR cut is conducive to expanding domestic demand and hedging the uncertainties faced by China's external demand. Third, while replenishing liquidity, it will stimulate the capital market.
On the 17th, the four major A-share stock indexes fell, and the representative Shanghai Composite Index fell 1.41% to close at 3,068.80 points, the lowest in the year.
Yang Delong, chief economist at Qianhai Open Source stated that the economic fundamentals have not changed and that the recent adjustment of many A-share stocks to quality stocks has been wrongly killed. The central bank's RRR cut will boost market confidence, and the market outlook is expected to start a rebound and gradually repair the previous decline.
Does the RRR cut mean that the orientation of monetary policy has changed?
The reporter noted that some institutions believe that the loosening of monetary policy is open, and that “this action by the central bank means that monetary policy has been fine-tuned.”
Pan Xiangdong believes that risk prevention is one of the three major challenges in 2018, and the steady neutral monetary policy will not change. March: The central bank follows Fed to increase short-term money marketinterest rateAs well as the government's proposed structural bar, it has clearly conveyed its determination to prevent risks.
“The direction of a stable and neutral monetary policy remains unchanged.” Relevant officials of the central bank made it clear that most of the funds released this time were used to repay medium-term borrowing facilities, which is a substitute for two liquidity adjustment tools and the remaining small Some funds are hedged against the tax period in mid-to-late April. Therefore, while optimizing the liquidity structure, the total amount of liquidity in the banking system remains basically unchanged and remains neutral.
At the same time, the responsible person stated that China is a developing country, and in order to guard against financial risks, it still needs to maintain a relatively high deposit reserve ratio. The People's Bank of China will continue to implement a stable and neutral monetary policy, maintain a reasonable and stable liquidity, and guide the stable and moderate growth of money and credit and social financing, and create a suitable monetary and financial environment for high-quality development and supply-side structural reforms.
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