"In terms of RRR reduction and interest rate reduction, we will further reduce the deposit reserve ratio by 0.25 to 0.5 percentage points", "In terms of the real estate market, we will support the risk resolution and healthy development of the real estate market" and "In terms of the capital market, we will cooperate with the CSRC to explore normalized institutional arrangements" … In view of the market’s concern about RRR reduction and interest rate reduction and the stock market property market, Pan Gongsheng, governor of the People’s Bank of China, released a number of heavy signals in his latest keynote speech at the annual meeting of the 2024 Financial Street Forum.
LPR is lowered this week.
A package of incremental monetary policies is being implemented in an orderly manner. Not long ago, the People’s Bank of China, the General Administration of Financial Supervision and the China Securities Regulatory Commission convened a forum for major commercial banks, securities and fund companies to make special arrangements for financial institutions to implement a package of policies.
Among them, regarding the implementation of relevant policies of the People’s Bank of China, on October 18th, Pan Gongsheng made a systematic introduction again, and one of the hot spots that cannot be separated is the RRR cut and interest rate cut.
In this regard, Pan Gongsheng revealed that on September 27, the deposit reserve ratio has been lowered by 0.5 percentage points. It is expected that the deposit reserve ratio will be further lowered by 0.25-0.5 percentage points before the end of the year depending on the market liquidity; Reduce the operating interest rate of 7-day reverse repurchase in the open market by 0.2 percentage points; The convenient interest rate for medium-term lending dropped by 0.3 percentage points, from 2.3% to 2%.
As early as October 18th, commercial banks announced that they would lower the deposit interest rate. Pan Gongsheng predicted that the loan market quoted interest rate (LPR) announced on the 21st of this month would also drop by 0.2-0.25 percentage points.
In the industry’s view, this will further stimulate the real estate market. "The downward adjustment of LPR quotation is in line with the general direction of the current macro policy and is a key link to transmit the central bank’s’ strong interest rate cut’ to the real economy." As Wang Qing, the chief analyst of Oriental Jincheng, pointed out, it is expected that after the LPR quotation is lowered in October, the loan interest rates of enterprises and residents will be further lowered, thus stimulating the financing demand of the real economy, promoting consumption and expanding investment, boosting the kinetic energy of economic growth, driving the price level to moderately rebound, and helping to promote the real estate market to stop falling and stabilize, which can provide important support for successfully completing the objectives and tasks of economic and social development throughout the year.
Up to now, all four real estate financial policies have been released. Pan Gongsheng introduced that the interest rate adjustment of existing mortgage is an important policy to benefit people’s livelihood decided by the central government, which benefits 50 million families and reduces their interest expenses by about 150 billion yuan every year.
Two tools to help the stock market
Keeping pace with Pan Gongsheng’s voice, on the morning of October 18th, two monetary policy tools to support the capital market announced by the central bank in the early stage were launched one after another.
Prior to this, on October 10th, the central bank created the SFISF tool for securities, funds and insurance companies. On October 18th, the central bank and the China Securities Regulatory Commission officially issued a notice, and started operations from now on. At present, 20 securities and fund companies have been approved to participate in the operation of tools, and the total application amount has exceeded 200 billion yuan.
Beijing business today reporter learned from relevant financial institutions that the joint notice of the central bank and the China Securities Regulatory Commission clarified the business process, tool elements, rights and obligations of both parties to the transaction. The central bank entrusts China Bond Credit Enhancement Company, a primary dealer in open market business, to carry out swap transactions with securities, funds and insurance companies.
It is worth mentioning that at the same time, the central bank officially announced the launch of stock repurchase and refinancing. The initial amount of refinancing is 300 billion yuan, and the interest rate is 1.75%. The cumulative period is estimated to be three years.
From now on, 21 national financial institutions can issue relevant loans to qualified listed companies and major shareholders, and apply to the People’s Bank of China for refinancing in the first month of the next quarter. For eligible loans, the People’s Bank of China will provide refinancing support at 100% of the loan principal. Among them, the interest rate of loans issued by financial institutions does not exceed 2.25% in principle, which can effectively stimulate the enthusiasm of listed companies and major shareholders to buy back and increase their holdings. Authoritative experts pointed out that the loan interest rate of 2.25% is already a very low interest rate for listed companies and major shareholders, which reflects the support of the central bank to promote the stable operation of the capital market. This also means that as long as the dividend rate of listed companies is higher than 2.25%, it is profitable for listed companies and major shareholders to use loans to repurchase and increase their holdings, which is expected to significantly stimulate their enthusiasm for repurchase and increase their holdings.
The launch of relevant policies also marks that two monetary policy tools to support the capital market announced by the central bank in the early stage have landed. Authoritative experts predict that in the future, the central bank should continue to improve its tools on the basis of experiments, coordinate the liquidity distribution in different markets, and jointly enhance the internal stability of the capital market.
Pan Gongsheng also pointed out at the meeting that the stock repurchase and refinancing funds provided by the central bank have specific directionality, and it is still a red line for financial supervision that credit funds cannot illegally enter the stock market. These two tools reflect the expansion and new exploration of the central bank’s function of maintaining financial stability. Follow-up will also cooperate with the CSRC to gradually improve in practice and explore normalized institutional arrangements.
Should be more effective in expanding consumption.
Pan Gongsheng mentioned that in order to promote high-quality economic development and sustainable growth, it is necessary to grasp the dynamic balance in many aspects in economic operation.
Among them, the dynamic balance between investment and consumption. "In previous economic cycles in history, we mainly relied on expanding investment and preserving supply-side production capacity to counter the downward pressure on the economy and played an important and positive role. In the stage of high-quality development, investment needs to increase or decrease according to the direction of economic restructuring, and more investment is invested in scientific and technological innovation, basic people’s livelihood and other fields. " Pan Gongsheng said that it is necessary to adhere to the people-centered development idea, focus on increasing residents’ income, optimize the structure of fiscal expenditure, improve the social security system, and promote the expansion of consumption, thus forming a virtuous circle of "the government fosters consumption, consumption activates the market, the market leads enterprises, and enterprises expand investment".
He further stressed that to achieve the dynamic balance of the economy, we need to grasp several key points. On the one hand, the direction of macroeconomic policy should shift from more investment in the past to paying equal attention to consumption and investment, and pay more attention to consumption. The other is to better handle the relationship between the government and the market, scientifically grasp and balance the boundary between the government and the market, and improve the intersection and pertinence of policy and market concerns. In addition, it is to further deepen reform and opening up, create a good economic environment ruled by law, and create a fairer and more dynamic market environment.
In this regard, Zhou Maohua, a macro researcher in the financial market department of China Everbright Bank, believes that there is still sufficient room for conventional policy tools in the current domestic price environment. Considering that before the end of the year, financial institutions will be promoted to increase support for the real economy, the implementation of incremental fiscal policies, and seasonal disturbances, there may be some fluctuations in funds. In order to make cross-cycle adjustment, it is not excluded that the central bank will reduce the deposit reserve ratio again. In addition, there is still room for interest rate instruments at present, but the constraints are also obvious. The central bank needs to take into account the real economy and price recovery, and take into account the internal and external balance.
Beijing business today reporter Liu Sihong