China'S Central Bank Announces 50 Basis Points

The central bank announced that since March 1, 2016, the RMB deposit reserve ratio of financial institutions has been generally reduced by 0.5 percentage points, so as to maintain a reasonable and abundant liquidity in the financial system and guide the steady growth of monetary and credit, thus creating an appropriate monetary and financial environment for the structural reform of the supply side.

After this reduction, the deposit rate of large and small banks will be reduced to 17% and 15% respectively.

Before that, some analysts believed that monetary policy could be tightened with the increase in new credit and CPI in January. It is also said that China's economy is still facing deflationary pressure, and it is imperative to promote economic growth by easing policies. Song Yu, chief China economist at Goldman Sachs, believes that the debate seems to have settled with the mild and relaxed view.

Goldman Sachs said that the reduction is a clear signal reflecting the relaxation of monetary policy, just as the central bank governor Zhou Xiaochuan made at the G20 meeting.

Goldman Sachs wrote in a report:

The authorities' reluctance to go further is probably due to leverage and CPI. Inflation rate Concerns about further growth (which we expect is mainly driven by higher food prices) will increase CPI from 1.8% in January to more than 2% in February.

Goldman Sachs estimated that the 50 base point would release about 670 billion yuan of liquidity. The real impact of RRR on the economy should be very limited, because the central bank has been using open market operations and other tools to inject liquidity to help stabilize interbank market interest rates for quite some time.

The scale of the open market operation tools that expired this week is relatively large. This may mean that the central bank merely replaced one with a liquidity tool. Considering that the overall credit supply in January is quite large, we believe that the central bank will not lower the interbank market interest rate in the short term.

Although Chinese policymakers passed the G20 meeting on a stable signal to the RMB exchange rate (at least in reference to the basket of currencies, the [CFETS exchange rate index, the bank for International Settlements and the special drawing rights), they left plenty of room for maneuver on how to interpret the wording.

Wall Street knowledge also mentioned earlier that on the eve of the Spring Festival, the market generally expected the central bank to reduce the supplementary liquidity, but taking into account the exchange rate factors, Central Bank We choose to invest liquidity through MLF and reverse repurchase. Ma Jun, chief economist of the central bank, once said that excessive adoption of measures to reduce the risk could lead to downward pressure on short-term interest rates, which is not conducive to stabilizing capital flows and exchange rates.

And now it's finally chosen. Drop accuracy Many foreign institutions believe that this indicates that the steady growth of the economy once again exceeds the exchange rate becomes China's top priority.

Goldman Sachs said the main difference between RR and open market operations is that the former issued stronger policy signals.

Because the easing of currency signals may bring pressure on the renminbi to depreciate in the near future, it also suggests that the authorities may be concerned about the degree of capital outflow in recent weeks.

In addition, at the G20 meeting last week, Zhou Xiaochuan, the governor of the central bank, relaxed for the first time that China's monetary policy was in a "steady and slightly relaxed state". Zhang Bin, senior researcher of China's financial forty person Forum (CF40), believes that the central bank's key point in monetary policy orientation is also very clear: monetary policy is in a steady and slightly relaxed state. If there is any need, there is still room for further development.