Lower the reserve requirement ratio and policy interest rates, and drive down the market benchmark interest rates; reduce the interest rates on existing housing loans, and unify the minimum down payment ratio for housing loans; create new monetary policy tools to support the stable development of the stock market... At the press conference held by the State Council Information Office on September 24, People's Bank of China Governor Pan Gongsheng announced a package of incremental monetary policies, with a force exceeding market expectations, releasing a positive signal of strengthening policy coordination and focusing on promoting the realization of the annual economic growth target.
"According to the central government's decision-making and deployment, to further support the stable growth of the economy, the People's Bank of China will firmly adhere to a supportive monetary policy stance, intensify monetary policy adjustments, improve the precision of monetary policy regulation, and create a good monetary and financial environment for the stable growth and high-quality development of the economy," Pan Gongsheng stated.
Dual approach of reserve requirement ratio reduction and interest rate cuts In terms of total quantity monetary policy, Pan Gongsheng clearly stated at this press conference that the central bank will reduce the reserve requirement ratio and cut interest rates.
In terms of quantity, the central bank announced a reduction of 0.5 percentage points in the reserve requirement ratio, providing long-term liquidity of 1 trillion yuan, and a further reduction of 0.25 to 0.5 percentage points depending on market liquidity conditions within the year, with the maximum liquidity released reaching 2 trillion yuan, driving down the bank's liability costs by about 8 billion yuan.
In terms of price, the 7-day reverse repo rate was reduced by 0.2 percentage points to 1.5%, while guiding the loan market quotation rate and deposit rates to move downward synchronously.
It is expected that this interest rate cut will lead to a 0.3 percentage point reduction in the MLF (Medium-term Lending Facility) rate, with the LPR (Loan Prime Rate) and deposit rates following suit by 0.2 to 0.25 percentage points, keeping the bank's net interest margin neutral overall.
The last comprehensive reserve requirement ratio reduction by the central bank was on February 5 of this year.
According to data disclosed by the central bank, since April 2022, China has implemented five comprehensive reserve requirement ratio reductions, releasing long-term funds of about 3 trillion yuan.
In the view of Wang Qing, Chief Macro Researcher at Orient Jincheng, the central bank's announcement of interest rate cuts and reserve requirement ratio reductions this time will play an important role in boosting the total demand of the macroeconomy.
On the one hand, the reduction in financing costs will directly stimulate consumption and investment demand, effectively playing a counter-cyclical regulatory role and promoting the improvement of economic growth momentum.
On the other hand, after the central bank has played the "combination of policies," it will effectively boost market confidence and improve social expectations.
At this stage, this is of great significance for stabilizing growth, stabilizing the housing market, and achieving the "around 5.0%" economic growth target set at the beginning of the year.
Creating new tools to support the stable development of the capital market In addition to total quantity tools, to maintain the stability of China's capital market and boost investor confidence, based on international experience and existing tools such as re-lending and central bank bill swap (CBS), the People's Bank of China also consulted with the China Securities Regulatory Commission and the Financial Regulatory General Administration to create two structural monetary policy tools to support the stable development of the capital market.
Specifically, the new tools include securities, fund, and insurance company swap facilities and special re-lending for stock buybacks.
It is noteworthy that this is also the first time the central bank has established structural monetary policy tools to support the capital market.
Some industry insiders told reporters that recently, affected by multiple factors, the A-share market has been relatively weak, posing a challenge to stabilizing market expectations, boosting confidence of micro-entities, and achieving the annual economic and social development goals.
The monetary policy tools were created against this background.
It is reported that the first phase of the swap facility will have an operation scale of 500 billion yuan, which can be expanded in the future depending on the situation.
Funds obtained through this tool can only be used to invest in the stock market.
At the same time, the central bank will create a special re-lending tool for stock buybacks and increases, guiding banks to provide loans to listed companies and major shareholders to support stock buybacks and increases.
The central bank will issue re-lending to banks, providing 100% funding support, with a re-lending rate of 1.75%, and the first phase of the quota is 300 billion yuan, which can also be expanded in the future depending on the situation.
Specifically, the special re-lending is not the central bank directly or indirectly lending to enterprises, but through an incentive compatibility mechanism, guiding 21 national banks to issue preferential interest rate loans to qualified listed companies and major shareholders for stock buybacks and increases on the premise of independent decision-making and risk-bearing.
After the relevant departments confirm the use of the loan, the People's Bank of China provides 100% re-lending support according to the loan principal.
Real estate financial policy plays a combination of punches The real estate financial policy, which has attracted market attention, has also been further improved.
Pan Gongsheng revealed that the subsequent policy will reduce the interest rates on existing housing loans and unify the minimum down payment ratio for housing loans.
"Compared with the policy of reducing the interest rates on existing housing loans in September 2023, this policy has been strengthened in terms of scope and the extent of reduction," said Wen Bin, Chief Economist of China Minsheng Bank, when talking about this policy adjustment.
In addition to reducing the interest rates on existing housing loans, the minimum down payment ratio for the second house at the national level will also be reduced from 25% to 15%.
Ma Hong, a senior researcher at Guangkai Chief Industry Research Institute, stated that the regulatory authorities' adjustments to the interest rates on housing stock loans and the down payment ratio for the second house have released a positive signal for stabilizing the housing market in the form of a policy "combination of punches."
The most direct positive effect of reducing the interest rates on existing housing loans is to alleviate the debt repayment pressure of existing housing loan holders, reduce the demand for early repayment, and may promote these residents to increase investment or consumption expenditure in other areas.
At the same time, the new policy also provides more preferential policies for homebuyers, hoping to better meet the rigid and improved housing needs by lowering the threshold for buying a house and reducing the cost of buying a house.
