On April 15, the central bank decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022. The RRR reduction rate is lower than 0.5% of the market expectation. The reason is that the central bank also said that the current liquidity has been at a reasonable and sufficient level. Therefore, the main purpose of RRR reduction is to increase the long-term stable source of funds of financial institutions; Second, guide financial institutions to actively use the RRR reduction funds to support industries and small, medium and micro enterprises seriously affected by the epidemic; Third, transmission through financial institutions can promote the reduction of social comprehensive financing costs.
The central bank's RRR reduction is preventive. By the end of December 2021, the bank's excess deposit reserve ratio reached 2%, and the banking system was relatively well funded. The central bank's RRR reduction this time is more symbolic, which can be said to be monetary easing implemented in advance under the bad economic situation.
At this stage, the economic difficulties are mainly on the demand side, and the central bank has limited play. (1) the central bank has gradually implemented the measures of wide money and wide credit, and the credit of the whole society has increased rapidly in the first quarter. In the process of overall credit growth, the credit growth rate of residents is lower than expected, the growth rate of short-term loans of enterprises is too fast, and the demand side is weak. The central bank's RRR reduction can increase the bank's credit funds, mainly focusing on the supply side, and the impact on the demand side needs the cooperation of other policies; (2) The economic difficulties that began in March are also related to the strengthening of covid-19 epidemic prevention and control. The actual impact on the economy is still under evaluation. This blocking on the supply side is not caused by the shortage of funds. Therefore, this impact on the economy needs the support of future monetary policy and fiscal policy. The central bank's RRR reduction is more an early response.
Consideration of the future direction of monetary policy: (1) inflation expectations are rising, and the central bank is still observing; (2) Overseas monetary policy tightened. In the process of global financial tightening, China conducts counter cyclical adjustment. In this case, the effect of monetary policy is not necessarily very good, and the exchange rate may be under pressure. (3) Foreign exchange reserves are still relatively stable, but the bank's financial surplus continues to decline, which needs to flow out a certain amount of monetary space.
Other monetary policies of the central bank (1) reduce the provision rate of large banks. Commercial banks release the provisions that have been accrued, which increases bank funds on the side. It is a tool against the cycle. (2) Small and medium-sized banks may be encouraged to lower the floating ceiling of deposit interest rates.
At this stage, the central bank's monetary policy is still cautious and needs more economic evaluation. The central bank still maintains the stability of monetary policy and the abundance of money market. The central bank's monetary policy tools tend to structural adjustment. The comprehensive RRR reduction may still come in the future, more likely after the change of exchange rate, and the reduction of interest rate may also be hidden and structural, The overall reduction of interest rates may have to wait for the second half of the year.
