- 2024-08-02
- News
End-of-Year Selective RRR Cut of 0.25-0.5% Points Based on Liquidity
Promoting a reasonable rebound in prices will be considered important, with a greater emphasis on the role of interest rates and other price-based regulatory tools.
In terms of reserve requirement ratio (RRR) cuts and interest rate reductions, following the initial implementation, commercial banks have announced a reduction in deposit interest rates on the morning of the 18th. It is expected that the Loan Prime Rate (LPR) announced next Monday (October 21st) will also decrease by 0.2 to 0.25 percentage points. Additionally, depending on market liquidity conditions by the end of the year, the central bank is expected to further reduce the reserve requirement ratio by 0.25 to 0.5 percentage points at an appropriate time.
In the real estate sector, all four real estate financial policies have been fully released.
In the capital market sector, the central bank, in conjunction with the China Securities Regulatory Commission and the Financial Regulatory General Administration, has established a working group. The "Securities, Fund, and Insurance Company Swap Facility" has begun accepting applications from financial institutions, and the "Stock Repurchase and Increase in Special Re-lending" policy document was officially released and implemented on October 18th.
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On the same day, the three major A-share indices slightly fell in the morning but quickly turned positive. By the close, the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index had risen by 2.91%, 4.71%, and 7.95%, respectively.
According to an announcement on the central bank's official website, two financial tools supporting the capital market were officially launched immediately, and some details related to the tools were disclosed.
The "Securities, Fund, and Insurance Company Swap Facility" has an initial quota of 500 billion yuan, with 20 securities and fund companies currently approved to participate in the swap facility operations, and the first batch of application quotas has already exceeded 200 billion yuan.
The central bank entrusts specific primary dealers in open market operations (China Bond Credit Enhancement Company) to conduct swap transactions with securities, fund, and insurance companies that meet the conditions set by industry regulators. The swap term is one year, with the possibility of extension depending on the situation. The swap rate is determined by the bidding of participating institutions. The available collateral includes bonds, stock ETFs, constituents of the CSI 300, and public REITs, with the discount rate set according to the risk characteristics of the collateral in different brackets. Funds obtained through this tool can only be invested in the capital market, used for investment and market-making in stocks and stock ETFs.
According to the relevant operational rules, the collateral ratio should not exceed 90% in principle, with the China Bond Credit Enhancement Company conducting mark-to-market management, and the margin call line is set not lower than 75%.The "stock buyback and shareholding increase special re-lending" program has an initial quota of 300 billion yuan, with an annual interest rate of 1.75% and a term of one year. Financial institutions are required to issue loans at a rate that does not exceed 2.25% in principle.
The China Development Bank, policy banks, state-owned commercial banks, Postal Savings Bank of China, joint-stock commercial banks, and 21 other nationwide financial institutions (hereinafter referred to as the 21 financial institutions) will issue loans in accordance with policy regulations to support listed companies in stock buybacks and shareholding increases.
At the same time, the central bank emphasizes that the 21 financial institutions' issuance of loans is a decision made independently and at their own risk. The loan funds are "earmarked and operated in a closed loop." For loans issued for stock buybacks and shareholding increases by the 21 financial institutions in accordance with the notice, if they do not comply with regulatory provisions such as "credit funds must not flow into the stock market," they are exempt from executing the relevant regulatory provisions; for credit funds other than those exempted, the current regulatory provisions will be implemented.
In the aforementioned speech, the relevant parties shared three considerations in the formulation and formation process of the aforementioned policy.
Firstly, the current economic operation requires the implementation of strong macroeconomic support policies.
Secondly, there are still some prominent contradictions and challenges in the current economic operation, mainly in the real estate market and the capital market. Based on international experience and China's past practices, targeted policies are needed to address these issues.
Thirdly, the central bank needs to observe and assess financial market risks from a macroprudential management perspective and take appropriate measures to block or weaken the accumulation of financial market risks.
In terms of the target system, promoting a reasonable rebound in prices will be an important consideration, with greater emphasis on the role of interest rates and other price-type regulatory tools.
In terms of the implementation mechanism, the monetary policy toolkit will continue to be enriched, and the role of structural monetary policy tools will be played well, gradually increasing the buying and selling of government bonds in open market operations.
In terms of the transmission mechanism, efforts will be made to continuously improve the transparency of monetary policy, enhance the autonomous and rational pricing ability of financial institutions, and enhance the consistency with fiscal, industrial, and regulatory policy orientations, thereby further improving the transmission efficiency of monetary policy.In the operation of the economy, it is necessary to maintain a dynamic balance in three aspects: first, the dynamic balance between the speed of economic growth and the quality of economic growth; second, the dynamic balance between the internal and external aspects of economic growth; and third, the dynamic balance between investment and consumption.
To achieve a dynamic balance in the economy, it is essential to focus on three key points: First, the direction of macroeconomic policy should shift from a greater emphasis on investment in the past to a balance between consumption and investment, with a greater emphasis on consumption. Second, it is important to better manage the relationship between the government and the market, scientifically grasp and balance the boundaries between the government and the market, and enhance the intersection and targeting of policies with market concerns. Third, it is necessary to further deepen reform and opening up, create a favorable rule of law economic environment, and foster a more equitable and dynamic market environment.
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