Three consecutive rounds of "combination punches" of monetary policy support economic recovery
2024-08-14
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Recently, the People's Bank of China released the "China Monetary Policy Implementation Report for the Second Quarter of 2024", summarizing the implementation of monetary policy in the first half of the year.
Overall, the monetary policy stance has been supportive since the beginning of this year, providing financial support for the continued recovery of the economy. The total amount of finance has grown reasonably. At the end of June, the stock of social financing scale and broad money (M2) increased by 8.1% and 6.2% year-on-year respectively, and new loans in the first half of the year were 13.3 trillion yuan; the credit structure continued to optimize. At the end of June, inclusive small and micro loans and medium- and long-term loans in the manufacturing industry increased by 16.5% and 18.1% year-on-year respectively, both exceeding the growth rate of all loans; the financing cost has been stable and declining. In June, the weighted average interest rate of newly issued corporate loans was 3.63%, 0.32 percentage points lower than the same period last year; the RMB has been stable and rising against a basket of currencies. At the end of June, the RMB exchange rate index of the China Foreign Exchange Trading Center (CFETS) rose by 2.7% compared with the end of last year.
This is inseparable from the strong support of monetary policy. Since the beginning of this year, three rounds of monetary policy "combination punches" have been introduced to support economic recovery, effectively reflecting counter-cyclical regulation.
Work hard to help the economy get off to a good start. At the beginning of this year, the market had some concerns about the full-year economic growth. On January 24, at a press conference held by the State Council Information Office, the central bank released a heavy signal to boost confidence, lowered the interest rates of re-loans and re-discounts for supporting agriculture and small businesses by 0.25 percentage points, lowered the reserve requirement ratio by 0.5 percentage points, and released more than 1 trillion yuan of medium- and long-term liquidity... The package of policies provided the market with ample liquidity, and the cost of bank funds dropped significantly. Subsequently, in February, the loan market benchmark rate (LPR) for more than 5 years fell by 0.25 percentage points, the largest drop since the LPR reform in 2019. At the beginning of the year, monetary policy was implemented early and vigorously, which strongly supported the good start of the economy. In the first quarter, GDP grew by 5.3%, significantly better than market expectations.
Grasp the key points and ease the drag of the real estate industry on the economy. The central bank not only worked hard on the total amount, but also worked hard on the structure, grasping the key points to stabilize the economic operation. On May 17, the central bank launched a policy "combination punch" for the real estate market, reducing the minimum down payment ratio of personal housing loans, canceling the lower limit of personal housing loan interest rates, and lowering the interest rate of provident fund loans, reducing the cost of housing purchases for residents, and releasing rigid and improvement housing demand. At the same time, a 300 billion yuan re-loan for affordable housing was established to support the destocking of the real estate industry. The unprecedented policy strength effectively alleviated the risks in the real estate market. In the first half of the year, the year-on-year declines in the sales area and sales of newly built commercial housing nationwide narrowed by 1.3 and 2.9 percentage points respectively from January to May, and the foundation for the economic recovery was further consolidated.
Deepen reform and actively implement the deployment of the Third Plenary Session of the 20th CPC Central Committee. The Third Plenary Session of the 20th CPC Central Committee proposed to accelerate the improvement of the central bank system and smooth the monetary policy transmission mechanism. Subsequently, on July 22, the central bank announced a 10 basis point reduction in the interest rate of the 7-day reverse repurchase operation in the open market, and the 1-year and 5-year LPRs reported on the same day both dropped by 10 basis points. It should be noted that since late July, the central bank's series of monetary policy operations are not only short-term macroeconomic regulation, but also a reflection of the medium- and long-term financial reform ideas. In the short term, the interest rate cut will further promote the steady decline of the comprehensive financing cost of the real economy and consolidate and enhance the positive trend of economic recovery. In the medium and long term, the central bank has taken substantial steps in improving the market-based interest rate regulation mechanism. Among them, it was announced that the 7-day reverse repurchase operation in the open market will adopt a fixed interest rate and quantity bidding, further clarifying the policy interest rate, and strengthening the linkage between the market interest rate and the 7-day reverse repurchase operation interest rate. The policy interest rate color of the medium-term lending facility (MLF) interest rate has been significantly weakened. The central bank has further enhanced its interest rate regulation ability and released a clear reform signal by adjusting and optimizing open market operations.
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