Central Bank Announces 0.5% RRR Cut and 1.5% Repo Rate
On September 27th, the People's Bank of China (PBOC) website released a statement indicating that the PBOC maintains a supportive monetary policy stance, intensifies the regulation of monetary policy, enhances the precision of monetary policy regulation, and creates a favorable monetary and financial environment for the stable growth and high-quality development of the Chinese economy.
The PBOC has decided that starting from September 27, 2024, the reserve requirement ratio (RRR) for financial institutions will be reduced by 0.5 percentage points (excluding financial institutions that have already implemented a 5% reserve requirement ratio). After this adjustment, the weighted average reserve requirement ratio for financial institutions will be approximately 6.6%.
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On the same day, the central bank issued the latest public market operations announcement, stating that in order to increase the counter-cyclical adjustment of monetary policy and support stable economic growth, starting from September 27th, the interest rate for the 7-day reverse repo operations in the public market will be adjusted from the previous 1.70% to 1.50%. The interest rates for the 14-day reverse repo and temporary positive and reverse repo operations will continue to be determined by adding or subtracting points to the interest rate of the 7-day reverse repo operations in the public market, with the addition or subtraction points remaining unchanged.
According to Xinhua News Agency, the Political Bureau of the CPC Central Committee held a meeting on September 26th to analyze and study the current economic situation and to deploy the next steps for economic work. The meeting called for the effective implementation of existing policies, the introduction of additional policies, and further enhancement of the targeted and effectiveness of policy measures, striving to achieve the annual economic and social development goals and tasks.
Compared to the Political Bureau meeting on July 30th, this meeting's statements showed significant changes in many aspects. For example, in terms of macro policy, it shifted from "macro policy should continue to exert effort and be more effective. Strengthen counter-cyclical regulation, implement proactive fiscal policy and prudent monetary policy" to "increase the counter-cyclical regulation of fiscal and monetary policies, ensure necessary fiscal expenditure, and effectively carry out the grassroots 'three guarantees' work". In terms of monetary policy, it evolved from "comprehensive use of various monetary policy tools, increase financial support for the real economy, and promote a stable and declining trend in comprehensive financing costs in society" to proposing "to reduce the reserve requirement ratio and implement a strong interest rate cut".
Implementing the spirit of the Political Bureau meeting
The PBOC stated yesterday: Fully promote financial incremental policy measures to accelerate implementation
On the afternoon of September 26th, the PBOC held a video conference across the entire system to study and implement the spirit of the Political Bureau meeting on September 26th, and to fully promote the recent financial incremental policy measures to take effect as soon as possible. Pan Gongsheng, Secretary of the Party Committee and Governor of the PBOC, attended the meeting and delivered a speech.
The meeting emphasized that the Political Bureau meeting made a profound analysis of the current economic situation and made clear arrangements for the next steps in economic work. The PBOC system needs to act quickly, go all out, and fully implement it. It is necessary to accelerate the introduction of financial incremental policy measures, grasp each policy measure, and implement it. It is necessary to strengthen departmental coordination, establish relevant working groups, and work together across the entire system to effectively promote the continuous recovery and improvement of the economy and high-quality development of finance. The preview has been released on Tuesday.
In fact, on September 24th, the introduction of a package of policies had already sent a signal that the reserve requirement ratio and interest rates would be reduced. At that time, Governor Pan Gongsheng announced a series of major monetary policy adjustments at a press conference held by the State Council Information Office.Pan Gongsheng stated that the reserve requirement ratio will be reduced by 0.5 percentage points in the near term, providing the financial market with long-term liquidity of about 1 trillion yuan; depending on the market liquidity conditions within this year, there may be further targeted reductions of the reserve requirement ratio by 0.25 to 0.5 percentage points.
Regarding interest rate cuts, the central bank's policy interest rate will be lowered, specifically the 7-day reverse repo operation rate will be reduced by 0.2 percentage points, adjusted from the current 1.7% to 1.5%. Concurrently, the loan market报价利率 (LPR) and deposit rates will be guided to move downward in sync, maintaining the stability of the net interest margin for commercial banks.