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the interest rate cut and the reserve requirement ratio cut! monetary policy is working hard to support stable growth. on september 24, the state council information office held a press conference. pan gongsheng, governor of the people's bank of china, mentioned that a number of heavy-weight policies were launched at the same time to increase the intensity of monetary policy regulation and further support stable economic growth. analysts pointed out that the package of loose monetary policy and economic stabilization policies exceeded market expectations and will play an important role in boosting market confidence, stimulating the vitality of entities, stabilizing credit levels, and enhancing the sustainability of financial support for the real economy.

the interest rate cut and reserve requirement ratio cut exceeded expectations

at the press conference, pan gongsheng made a major announcement that the central bank's policy interest rate will be lowered, with the 7-day reverse repurchase operation rate reduced by 0.2 percentage points from the current 1.7% to 1.5%, guiding the loan market benchmark rate and deposit rate to decline simultaneously and maintaining the stability of the commercial banks' net interest margin.

on july 22, the people's bank of china announced that it would lower the 7-day reverse repurchase rate by 10 basis points from 1.8% to 1.7%. liu tao, a senior researcher at guangkai chief industry research institute, believes that this further reduction of 20 basis points highlights the people's bank of china's policy idea of ​​setting the open market reverse repurchase operation rate as the main policy rate and unblocking the monetary policy transmission mechanism. the reduction in the 7-day reverse repurchase rate will lead to a corresponding reduction in benchmark interest rates such as dr007 and lpr, which will in turn affect the actual decline in interest rates in the money market, credit market, and bond market. it will not only help to effectively reduce the financing costs of the real economy, but also send a positive and aggressive policy signal to the market, providing a suitable policy environment and market environment for the stabilization and improvement of the macro economy.

as pan gongsheng said, it is expected that after this policy interest rate adjustment, the medium-term lending facility (mlf) interest rate will be reduced by about 0.3 percentage points, and the loan market benchmark rate (lpr), deposit interest rate, etc. are also expected to decline by 0.2-0.25 percentage points.

regarding reserve requirement ratio cuts, pan gongsheng pointed out that the deposit reserve ratio will be lowered by 0.5 percentage points in the near future to provide about 1 trillion yuan of long-term liquidity to the financial market.

specifically, the weighted average deposit reserve ratio of financial institutions is currently 7%. among them, the current deposit reserve ratio of large banks is 8.5%, which will be reduced from 8.5% to 8% after adjustment; the current deposit reserve ratio of medium-sized banks is 6.5%, which will be reduced to 6% after adjustment; rural financial institutions have already implemented a deposit reserve ratio of 5% a few years ago, which will not be adjusted this time.

pan gongsheng said that after the implementation of the reserve requirement ratio cut policy, the average deposit reserve ratio of the banking industry is about 6.6%, which still has room for improvement compared with the central banks of major economies in the world. "there are still three months before the end of the year to further reduce the deposit reserve ratio by 0.25-0.5 percentage points depending on the situation."

talking about the role of the reserve requirement ratio cut, liu tao explained that the reserve requirement ratio cut not only directly injected a large amount of liquidity into the banking system, easing the bank's operating pressure such as deposit diversion, but also reduced the financing cost of the real economy. since the reserve requirement ratio cut directly reduced the liability cost of commercial banks, it can indirectly reduce the asset-side financing cost by lowering the liability cost of banks, thereby guiding funds to better serve small and micro enterprises.

in fact, with the expectation of increased effective demand for the real economy, the strengthening of macroeconomic policies and the derivative effects of the fed's sharp interest rate cut, the market has long predicted a reduction in the reserve requirement ratio and interest rates in the fourth quarter. in the view of wang qing, chief macroeconomic analyst at orient securities, the extent of this interest rate cut is basically in line with market expectations, and the reduction in the reserve requirement ratio is relatively large, especially "it may further reduce the deposit reserve ratio by 0.25-0.5 percentage points at an appropriate time", which exceeds market expectations.

wang qing pointed out that the current peak period for government bond issuance is here, and the people's bank of china's reserve requirement cut can effectively support the issuance of government bonds. at the same time, the people's bank of china's significant reserve requirement cut will also provide support for banks to increase credit supply in the fourth quarter. this is expected to reverse the situation of a significant year-on-year decrease in new rmb loans from january to august, and is also an important driving force for stabilizing growth.

it is worth noting that, given that the lpr rate and deposit rate will also decline symmetrically, and the people's bank of china's reserve requirement ratio cut will directly provide banks with low-cost, long-term funds, the impact of this interest rate cut on the net interest margin of banks will remain neutral overall. liu tao further suggested that in order to ease the operating pressure of small and medium-sized banks, the central government can add 200 billion to 300 billion yuan of local special bonds to specifically support local governments in injecting capital into small and medium-sized banks to help them speed up their "blood recovery."

the tone of monetary policy turns to moderate easing

the reduction of reserve requirement ratio and interest rate, and the successive "bombardment" of related policies can be described as a "timely rain". behind this, on the one hand, since the second quarter, macroeconomic and financial indicators have been relatively weak, and monetary policy is urgently needed to further support; on the other hand, liu tao pointed out that there is a clear gap between the current "prudent" monetary policy tone and market perception and psychological expectations. from the perspective of policy coordination, in order to enhance the counter-cyclical adjustment effect, it is also necessary for monetary policy to better cooperate with fiscal policy and implement a "double easing" combination.

with the introduction of a series of heavyweight monetary policy packages, and against the backdrop of the current global monetary policy shifting towards easing, the tone of my country's monetary policy is also adjusting towards "moderate easing".

"the people's bank of china adheres to a supportive monetary policy stance, increases the intensity of monetary policy regulation, and improves the precision of monetary policy regulation," said pan gongsheng. in the process of designing the adjustment of monetary policy tools, the factors considered include supporting the stable growth of china's economy, promoting a moderate rebound in prices, taking into account the support for the growth of the real economy and the health of the banking industry itself, and maintaining the basic stability of the rmb exchange rate at a reasonable equilibrium level. in addition, attention is paid to the coordination of monetary policy and fiscal policy, and support for the positive fiscal policy to work better and achieve results.

based on this, pan gongsheng also talked about the relationship between monetary policy and the foreign exchange and bond markets. on september 18, the federal reserve announced a 50 basis point interest rate cut after a four-year absence, prompting major economies around the world to open the window for interest rate cuts. with the convergence of the domestic and foreign monetary policy cycle differences, the external pressure on the basic stability of the rmb exchange rate has been significantly reduced.

however, pan gongsheng stressed that the exchange rate is a price relationship between currencies, and its influencing factors are very diverse, such as economic growth, monetary policy, financial markets, geopolitics, unexpected risk events, etc. in the context of the two-way floating of the rmb exchange rate, market participants should also look at exchange rate fluctuations rationally, strengthen the concept of risk neutrality, and not "bet on the direction of the exchange rate" or "bet on unilateral trends". enterprises should focus on their main businesses, and financial institutions should continue to serve the real economy.

pan gongsheng made it clear that the people's bank of china's position on exchange rate policy is clear and transparent. it insists on the decisive role of the market in exchange rate formation, maintains exchange rate flexibility, and at the same time strengthens expectation guidance, prevents the formation of unilateral consistent expectations and their self-realization, guards against the risk of exchange rate overshooting, and keeps the rmb exchange rate basically stable at a reasonable equilibrium level.

intensify investigation and punishment of illegal activities in the interbank bond market

in the bond market, the downward trend of treasury bond yields has become a hot topic in the market in recent times. pan gongsheng said that china's long-term treasury bond yields are currently hovering around 2.1%. the treasury bond yield level is the result of marketization, and the people's bank of china respects the role of the market. at the same time, there is no doubt that it has created a good monetary environment for china to implement a proactive fiscal policy.

but at the same time, it should be noted that interest rate risk is an important part of risk management for financial institutions. the central bank needs to observe and assess market risks from the perspective of macro-prudential management, and take appropriate measures to weaken and hinder the accumulation of risks. "it is also the responsibility of the central bank to maintain a good trading order in the bond market. recently, the people's bank of china has found that there are some situations of price manipulation, lending accounts, and profit transfer in the bond market. we will intensify the investigation and punishment of illegal and irregular behaviors in the interbank bond market and announce them to the public in due course." pan gongsheng said.

in addition, with the rapid development of my country's financial market, the scale and depth of the bond market have gradually increased, and the conditions for the people's bank of china to buy and sell treasury bonds and inject base currency through the secondary market have gradually matured. at present, the people's bank of china has included the purchase and sale of treasury bonds in the monetary policy toolbox and has begun to try operations. pan gongsheng revealed that the people's bank of china is also working with the ministry of finance to study the optimization of the pace of treasury bond issuance, maturity structure, and custody system, but "the whole process will be gradual."

wen bin, chief economist of china minsheng bank, commented that due to the favorable factors such as the reduction of reserve requirement ratio and interest rate, the bond market interest rate has risen overall, the stock market has risen actively, and the rmb exchange rate has risen steadily. the policy has played a significant role in boosting market confidence and stabilizing market expectations. with the gradual implementation of the policy and the continuous release of its effects, it is expected to effectively stimulate domestic demand and stabilize credit levels, helping the economy to recover steadily.

beijing business daily reporter yue pinyu dong hanxuan