Does Lowering The Deposit Reserve Ratio Mean A Policy Shift

　 This is a somewhat unexpected blockbuster news:

On the evening of November 30, the Central Bank announced that it would reduce the deposit category from December 5 financial institution RMB deposit reserve ratio is 0.5%.

This is the first time that the central bank has lowered the deposit reserve ratio in recent three years. From January 18, 2010 to June 20, 2011, the central bank has raised the deposit reserve ratio for 12 consecutive times. By raising the reserve ratio of financial institutions by a total of 600 basis points, it has recovered excess liquidity inhibition Prices are rising too fast. After this reduction, the deposit reserve ratio of large and small financial institutions in China was 21% and 17.5% respectively.

　　 Direct cause: in order to relieve Tight liquidity in the banking system

"The direct reason for this reduction of the deposit reserve ratio is to ease the tight liquidity situation of the banking system, which fully reflects the pertinence, flexibility and foresight of monetary policy", said Ba Shusong, deputy director of the Financial Research Institute of the Development Research Center of the State Council and chief economist of the China Banking Association.

Lian Ping, chief economist of the Bank of Communications, believes that the banking industry is facing a tight financial situation at present, and more and more banks have deposit loan ratios exceeding the upper limit of 75%. The Central Bank requires financial institutions to increase credit to small and micro enterprises in line with industrial policies, "agriculture, rural areas and farmers" and other weak links, meet the funding needs of national key projects under construction and continuation, and support the construction of affordable housing projects. Even if commercial banks have such aspirations and motivation, they will also lack the corresponding lending capacity due to tight positions. "This reduction in the deposit reserve ratio will release 400 billion yuan of funds, which will help banks enhance their lending capacity", said Lian Ping. "Considering the large amount of credit in January next year, which is likely to exceed 1 trillion yuan, we will cut it now Reserve ratio It reflects the forward-looking nature of monetary policy. "

On the other hand, the new changes in liquidity also make it feasible to reduce the deposit reserve ratio.

First, with the inflow of Cross border The decrease of funds and the narrowing of trade surplus led to a net decrease of 24.892 billion yuan in foreign exchange in October, the first decline in foreign exchange in a single month since December 2007. The amount in foreign exchange is the local currency invested by the central bank for the purchase of foreign exchange assets. The increase of the amount in foreign exchange will directly increase the amount of base currency, and through the currency multiplier effect, the RMB in circulation will rapidly increase. "The central bank raised the deposit reserve ratio to hedge the new liquidity brought by the growth of foreign exchange funds. Now, the decline of foreign exchange funds will reduce the supply of market liquidity, and also open the space for the reduction of the deposit reserve ratio," said Ba Shusong.

Secondly, in the past two or three months, the number of bills due from the central bank has decreased significantly, easing the monetary hedging pressure of the central bank and making it possible to reduce the deposit reserve ratio. {page_break}

　　 Release signal: experts believe that stable growth will be placed in a more important position

At present, under the comprehensive effect of a series of policies and measures, the trend of excessive price rise has been initially curbed, and the policy effect has gradually emerged. "CPI growth has fallen for three consecutive months, and we expect the CPI growth in November to be less than 4.5%," Ba Shusong said.

At the same time, although the internal driving force of China's economic growth is still strong, the external environment we face is very complex, especially the escalating European sovereign debt crisis, which may have a negative impact on China's economic growth. "The PMI index to be released in the near future may be 50 below the threshold of prosperity and decline. If so, it will be the first time that the PMI index has fallen below 50 in 23 months," Ba Shusong said.

"Under such circumstances, the reduction of the deposit reserve ratio has released a signal that we will further handle the relationship between maintaining steady and rapid economic development, adjusting economic structure and managing inflation expectations, in which stable growth will be placed in a more important position," Ba Shusong concluded.

　　 Policy orientation: it may be phased and structurally relaxed under the tone of sound monetary policy

Does lowering the deposit reserve ratio mean that the prudent monetary policy begins to turn?

Ba Shusong believes that the reduction of deposit reserve ratio reflects the timely and appropriate pre adjustment and fine adjustment of monetary policy, but does not mean that the tone of monetary policy has changed. "Under the general environment of extremely loose monetary conditions in the world will continue, domestic demand has expanded rapidly in the past two years, and there is a large amount of money stock, the future price trend is still uncertain, and the foundation for price stability is not yet solid. We expect CPI growth to be 3.5% - 4% for most of next year, which is also a significant increase, and we need to continue to adhere to the prudent monetary policy", Ba Shusong said frankly, "However, the reduction of the deposit reserve ratio indicates that in the fourth quarter of this year and the first quarter of next year, when China's economic growth slows and 'bottoms out', the central bank will make some phased and structural easing under the framework of a sound monetary policy.".

　　 Future forecast: some experts believe that the deposit reserve ratio may be reduced within 5 times before the end of next year

Will the reserve ratio continue to decline?

Lian Ping believed that, for the sake of stable growth, the increase of credit supply next year will be more than this year. Therefore, the deposit reserve ratio may be reduced by 0.5 percentage points each time within five times before the end of next year.

Ba Shusong said that if the European and American countries launch new quantitative easing policies in the future and the foreign exchange account has also changed the situation of significant reduction, there will be little room for the reduction of the deposit reserve ratio, otherwise it may continue to decline. "It depends on the change of liquidity".

"As for interest rates, it seems unlikely to cut interest rates at present. On the contrary, if prices remain high next year, because the monetary authorities cannot tolerate the long-term existence of negative interest rates, they cannot rule out the possibility of raising interest rates," Ba Shusong said.
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