On April 15, 2022, the central bank announced its decision 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). After this reduction, the weighted average deposit reserve ratio of financial institutions is about 8.1%.
I. essence: restraint and RRR reduction taking into account internal and external balance
The RRR reduction is the latest measure of "steady growth" of monetary policy under the economic downward pressure caused by the superposition of "triple pressure" and local epidemic outbreak, and it is also the rapid implementation of the spirit of the national standing committee meeting on April 13. Under the influence of "unexpected" factors such as the epidemic, the national standing committee meeting on March 29 still stressed that "we should set our goals and not relax", so the macro policy will further strengthen the support for the real economy. In March, the PMI of China's manufacturing and non manufacturing industries fell from the expansion range to the contraction range, especially the consumer service industry fell sharply by 11.7 percentage points; The export boom continued the downward trend since the fourth quarter of last year, and the contraction of the new export order index intensified. In February, China's urban unemployment rate rose from 4.9% in October last year to the upper limit of this year's government work target of 5.5%, and the task of "ensuring employment" is arduous. However, the 25bp reduction is lower than the market expectation, which is more "restrained" for two reasons:
First, the current capital level is not the main constraint restricting "wide credit". In answering reporters' questions, the central bank stressed that "the current liquidity has been at a reasonable level". Recently, the central bank has significantly increased the investment in liquidity, including the paid in balance profit of 1 trillion, the net investment in MLF of 400 billion this year and the release of 1.2 trillion (net investment of 750 billion) at the end of last year. From the perspective of price, the average value of dr007 in recent 10 days decreased to 1.84%, significantly lower than the 7-day reverse repo rate of 2.10%. At present, the blocking point of "wide credit" lies more in the low expectation and low demand brought by the continuous outbreak of the epidemic and the real estate downturn. It needs comprehensive measures and coordinated promotion in the fields of finance, real estate and epidemic prevention.
Second, the central bank needs to give consideration to "internal and external balance". In the context of the rapid tightening of monetary policy by major overseas central banks, a small RRR reduction means that monetary policy not only "actively responds" to the downward pressure on the economy, but also takes into account its goal of "external balance". At present, the Federal Reserve has completed the first interest rate hike, and there is a high probability that it will raise interest rates by 50bp again and start to shrink the table after the interest rate meeting in May. The 10-year interest rate difference between China and the United States once hung upside down. In order to give consideration to the basic stability of the exchange rate at a reasonable and balanced level and the balance of payments, the central bank chose to keep the policy interest rate with stronger signal unchanged, guided financial institutions to increase their support for the real economy through a small reduction in the reserve requirement, and also pointed to the marginal decline in the possibility of reducing the policy interest rates such as Omo and MLF in the near future.
In addition to the RRR reduction, a series of monetary policy tools intensively introduced recently show that in the face of external tight constraints, the central bank prefers to support the real economy through structural monetary policy "wide credit" than using the aggregate tool "wide money", and commercial banks will become an important transmission hub. First, encourage large banks with high provision level to reduce the provision rate in an orderly manner. On the one hand, release more available funds for large banks, on the other hand, provide incentives to improve their risk appetite and avoid "reluctance to lend" during the economic downturn. Second, the self-discipline mechanism of market interest rate pricing encourages small and medium-sized banks to reduce the floating upper limit of deposit interest rate by about 10bp, which helps to reduce the capital cost of commercial banks and benefit the real economy. Third, the central bank established structural tools such as scientific and technological innovation refinancing and inclusive pension refinancing, increased financial support for logistics and industrial chain supply chain, and targeted support for key areas and weak links in the economy.
