Event: the people's Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022 (excluding financial institutions that have implemented the 5% deposit reserve ratio). For urban commercial banks that do not operate across provinces and agricultural commercial banks with a deposit reserve ratio higher than 5%, it will reduce the deposit reserve ratio by an additional 0.25 percentage points on the basis of reducing the deposit reserve ratio by 0.25 percentage points.
Core view: the central bank's RRR reduction is intended to promote the continuous decline of comprehensive financing costs by reducing the debt costs of financial institutions, so as to stimulate the vitality of micro entities. The 25 basis point general reduction can not only avoid excess liquidity, but also reserve policy space for the future. Lowering the reserve requirement before the Fed accelerates monetary tightening can alleviate the pressure of RMB exchange rate depreciation and capital outflow. At the same time, the RRR reduction further strengthened the market expectation at the end of the policy. Subsequently, with the continuous repair of confidence, the equity market is expected to gradually get out of the repair market in the shock. Looking ahead, the central bank is expected to guide the LPR quotation interest rate and social comprehensive financing cost to continue to decline by continuously launching a number of policy combinations.
One of five questions: why is the standard lowered again?
At present, it is still in the initial stage of credit easing. To reverse the financing demand of the downturn of the real economy, monetary policy needs to continue to guide the decline of loan interest rates. The RRR reduction will help reduce the debt costs of commercial banks and other financial institutions, promote the further decline of social comprehensive financing costs, and then stimulate the vitality of micro entities.
Q2: Why did you choose to lower the standard at this point?
Before the monetary policy in Europe and the United States turns to accelerated tightening, the RRR reduction can not only create a more suitable liquidity environment for China's stable growth, but also reduce the impact of uncertainty caused by policy differentiation and alleviate the pressure of RMB exchange rate depreciation and capital outflow. At the same time, it is also a response to the central government's policy deployment of "early landing and early effect", which is conducive to boosting the expectations of all parties as soon as possible.
Q3 of five questions: why is the overall standard reduction of 25bp instead of 50bp?
First, at present, the liquidity of the inter-bank market is generally in a reasonable and abundant situation, and the maturity of MLF in the second quarter is limited. A comprehensive 50 BP RRR reduction will put in at least 1 trillion yuan of long-term liquidity, which may lead to excessive liquidity level, resulting in problems such as capital idle arbitrage. Second, the space for the deposit reserve ratio as a policy tool has been relatively limited. Appropriately reducing the deposit reserve ratio can reserve space for finance to continue to increase its support for the real economy. Third, the targeted reduction of 50bp for specific financial institutions can implement more accurate and stronger policy support for industries and small, medium and micro enterprises seriously affected by the epidemic.
Q4: how to view the follow-up monetary policy space?
Under the background of the continuous rebound of China's epidemic and the increasing pressure on steady growth, the central bank is expected to guide the LPR quotation interest rate and social comprehensive financing cost to continue to decline by continuously launching a number of policy combinations, including but not limited to reducing the policy interest rate, guiding the deposit interest rate ceiling, increasing the amount of refinancing and increasing open market operation.
Question 5: what impact will the RRR reduction have on the economy and the market?
First, it is conducive to maintaining the new financing at an acceptable level, but it still needs the cooperation of industrial policies and other policies and measures. Second, the RRR reduction is another confirmation of the policy bottom signal released by the gold stability meeting on March 16, which is conducive to enhancing the market's confidence in the stabilization and recovery of the economy and the restoration of corporate profits, and reversing the relatively low expectations in the early stage. Therefore, we believe that the emotional bottom and market bottom probability of the domestic stock market have also appeared. With the continuous repair of confidence, the market will gradually get out of the repair market in the shock.
Risk tip: the implementation of the policy was less than expected, the local epidemic of covid-19 pneumonia spread on a large scale, and the promotion of major projects around the country was less than expected.
