The central bank announced the RRR cut

In order to further support the development of the real economy, optimize the liquidity structure of commercial banks and financial markets, reduce financing costs, and guide financial institutions to continue to increase support for small and micro enterprises, private enterprises and innovative enterprises, the People's Bank of China decided that from 2018 From October 15th, the RMB deposit reserve ratio of large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks will be lowered by 1 percentage point. The medium-term loan facilities (MLF) due on the day will not be renewed. .

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The People's Bank of China decided to reduce the deposit reserve ratio of some financial institutions by 1 percentage point from October 15, 2018 to replace the MLF. ...[full text]
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Part of the funds released by the RRR reduction is used to repay the MLF that expires on October 15. Excluding this part, the RRR reduction can also release incremental funds of about 750 billion yuan. ...[full text]
Small survey
Central bank interpretation

  1. How will the operation of the medium-term loan facility be replaced by the RRR cut?

A: The main content of this RRR reduction is that from October 15, 2018, the RMB deposit reserve ratio of large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks will be lowered by 1 percentage point. Some of the funds released by the RRR cut were used to repay the approximately RMB 450 billion medium-term loan facility (MLF) due on October 15. This part of the MLF will not be renewed on the same day. In addition to this part, the RRR reduction can also release incremental funds of about 750 billion yuan.

  2. What are the main considerations for the central bank to replace the medium-term lending facilities through RRR cuts?

A: The main purpose of this RRR reduction is to optimize the liquidity structure and enhance the financial ability of financial services. Currently, with the increase in credit supply, the medium and long-term liquidity demand of financial institutions is also growing. At this time, appropriately reducing the statutory deposit reserve ratio and replacing some central bank borrowing funds can further increase the stability of the banking system funds, optimize the liquidity structure of commercial banks and financial markets, reduce the bank capital costs, and thus reduce corporate financing costs. At the same time, the release of about 750 billion yuan of incremental funds can increase the financial institutions' support for small and micro enterprises, private enterprises and innovative enterprises, promote the vitality and resilience of economic innovation, enhance the growth of endogenous economic growth, and promote the healthy development of the real economy. .

  3. Does the RRR change mean that the monetary policy orientation has changed?

A: The RRR cut is still a directional regulation. The liquidity of the banking system is basically stable. The monetary policy is stable and neutral, and the monetary policy orientation has not changed. Part of the funds released by the RRR reduction is used to repay the medium-term loan facility. It is a substitute for two liquidity adjustment instruments, and the remaining funds are hedged against the tax period in the middle and late October. Therefore, while optimizing the liquidity structure, the banking system The total amount of liquidity has remained basically unchanged. The People's Bank of China will continue to implement a prudent and neutral monetary policy, not to engage in floods, to reorient and control, to maintain a reasonable and sufficient liquidity, to guide the rational growth of monetary credit and social financing, and to create a high-quality development and supply-side structural reform. A suitable monetary and financial environment.

  4. Will the RRR cuts increase the pressure on the RMB exchange rate depreciation?

A: This RRR has made up for the liquidity gap of the banking system, optimized the liquidity structure, and the monetary policy has not relaxed. The market interest rate is stable. The broad money (M2) and social financing scale growth rate basically match the nominal GDP growth rate. It is reasonable and moderate, and will not form depreciation pressure. This RRR cut is conducive to promoting economic restructuring and promoting high-quality development. The economy is basically facing the consolidation of the RMB exchange rate. As a large-scale developing economy, China's exports have strong competitiveness. At the same time, China's economy is dominated by domestic demand, manufacturing industries are complete, industrial systems are relatively complete, import dependence is moderate, and the RMB exchange rate has sufficient conditions to maintain a reasonable balance. Basically stable at the level. The People's Bank of China will continue to take necessary measures to stabilize market expectations and keep the foreign exchange market running smoothly.

Market interpretation
Li Chao: This time the RRR cuts open the central bank's RRR channel. There will be subsequent RRR cuts in the future.

Li Chao believes that this RRR cut has limited impact on the exchange rate. The Fed’s interest rate hike operation and the depreciation of the RMB exchange rate will not become a decisive factor restricting the central bank’s monetary policy shift. The central bank is expected to enter the continuous RRR channel in the future, and the exchange rate depreciation will not become the core constraint. ...[Details]

Haitong Bond Jiang Chao: Adequate capital reduction, the bond market is still good for a long time

At the end of the 2nd quarter, the central bank announced that the commercial bank's over-reserve rate has returned to a two-year high of 1.7%. Since the third quarter, the central bank has opened a market with a currency of about 500 billion yuan, plus the implementation of the targeted RRR cut in July, even after deducting the third quarter. With a financial contribution of 100 billion yuan, we estimate that the excess reserve ratio at the end of the third quarter is still at a relatively high level of 1.5% or more. The central bank announced that it will again reduce its quota by 1% on October 15. After replacing the maturity of 450 billion MLF, it will release 750 billion base currency, which means that the current liquidity of the banking system is at a relatively high level. ...[Details]

Yang Delong: The central bank's RRR cuts support the development of the real economy and greatly enhance the confidence of the stock market.

During the holiday period, the external market experienced different degrees of decline. As US bond yields continued to rise, US stocks began to sell off, while Hong Kong stocks fell more. European and other Asia-Pacific stock markets also generally fell, putting a lot of pressure on the opening of the A-share market. The central bank's RRR cut is undoubtedly a "timely rain", which can offset the pressure of the decline in the external market, which will help boost market confidence and continue the rebound trend before the holiday. ...[Details]

Li Dazhao: The RRR cut will hedge the impact of the overseas market crash.

Li Dazhao, chief economist of Yingda Securities, said that the RRR cut can release incremental funds of about 750 billion yuan. This measure can support the development of the real economy, optimize the liquidity structure, reduce the financing cost of enterprises, and guide financial institutions to increase their Enterprises, private enterprises and innovative enterprises support, maintain a reasonable and sufficient liquidity, guide the reasonable growth of money and credit and social financing scale, and create a suitable monetary and financial environment for high-quality development and supply-side structural reform. It has a very positive effect on stabilizing economic growth, and it also has a positive effect on the stock market, and at the same time it has the effect of sharply falling overseas markets for hedging holidays. It is a major positive news! ...[Details]

Minsheng Bank of China Minsheng: RRR cuts are conducive to increasing support for the real economy

Wen Bin, chief researcher of China Minsheng Bank: Reducing the standard of monetary policy without changing the monetary policy is conducive to financial institutions to increase their support for the real economy. The RRR cut was 1 percentage point, and the funds were released by 1.2 trillion yuan, of which 450 billion yuan was used to hedge the maturity of medium-term loan facilities (MLF), and the additional 750 billion yuan will also be hedged against tax payment. ...[Details]

Zhang Ming: Seven comments on the central bank's RRR cuts next time or before the Spring Festival next year

Zhang Ming, a researcher at the Institute of Social Economics of the Chinese Academy of Social Sciences and chief economist of Ping An Securities, made the following comments on the central bank's RRR cut: 1. This is the third time this year. 2. The macro background of this RRR cut is a further slowdown in the growth rate of the real economy. 3. The financial background of this RRR reduction is still difficult for SMEs to finance. 4. Another problem reflected by the central bank's RRR cut is that the central bank does not believe that inflation will become a major threat in the short term. 5. At the same time of this RRR cut, the central bank also stressed that the RRR cut will not cause the RMB exchange rate to face significant depreciation pressure. 6. Another background in which the central bank can reduce the RRR is that the real estate market has been basically controlled. 7. After this RRR cut, we expect that the probability of the central bank continuing to lower the RRR this year is small, and the next RRR cut may be placed before the Spring Festival next year. ...[Details]

Economist Ma Guangyuan: The RRR can be stabilized and expected

Ma Guangyuan, an economist, said that the RRR cut is correct. The RRR cut can stabilize expectations and stabilize the economy, especially the stable housing prices. Of course, the RRR cut also means that the deleveraging policy has actually withdrawn, the monetary policy has returned to reality, and the problem of corporate liquidity has been alleviated. ...[Details]

Yangtze River Strategy: Short-term stock index rises after probation

The Yangtze River Strategy Research Report separately calculated the performance of the Shanghai Composite Index and the Growth Enterprise Market Index from 5 trading days, 30 trading days and 90 trading days after the targeted RRR cut and full RRR cut since 2014: overall, orientation After the RRR cut, the market did not show obvious rules. After the overall RRR cut, the market will increase in the short-term (5 trading days, 30 trading days), but there is no obvious law in the long run. ...[Details]

Economist Lu political commissar: RRR cuts help to improve market risk appetite Improve private enterprise financing conditions

In response to the central bank's fourth RRR cut during the year, Lu Zhengwei, chief economist of Industrial Bank, said that the replacement of MLF was again reduced, keeping the total amount unchanged, reflecting a stable neutrality; but extending the term structure and helping to compress the term. Spreads; continuous RRR cuts will ultimately help to improve market risk appetite, reduce credit spreads, and improve the financing conditions of private companies. ...[Details]

List of deposit reserve rates
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