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E-mail China.org.cn, October 18, 2024
Shou Xiaoli:
Thank you, Mr. Wu. Now, the floor is open for questions. Please state the news organization you represent before asking your question. You may now raise your hands to be called upon.
CCTV:
We know that the PBC has implemented three major monetary policy adjustments this year. As Mr. Pan mentioned in the introduction, the PBC will continue to lower the reserve requirement ratio and policy interest rates in the coming stage. These policies on aggregates will play an important role in stabilizing growth, which people pay great attention to. Could you please give us more details in this regard? Thank you.
Pan Gongsheng:
Aggregates in monetary policy are also attracting great attention from all sectors of society and the market. I have said many times on different occasions that the PBC adheres to an accommodative monetary policy stance, intensifies the strength of monetary policy regulation and enhances the precision of monetary policy regulation. We have employed a combination of various monetary policy tools to support the stable growth of the real economy. In the process of designing monetary policy tool adjustments, the PBC has several important considerations: the first is to support the stable growth of China's economy; the second is about the price, which is also an important consideration in designing monetary policy tools--we must promote a moderate rebound in prices; the third is that we must take into account both support for the growth of the real economy and the health of the banking industry itself--there must be a good balance between the two parties; the fourth is the exchange rate--we must maintain the general stability of the RMB exchange rate at an adaptive, balanced level. Another point is that we pay attention to the coordination between monetary policies and fiscal policies, and support the proactive fiscal policy to work better and achieve results.
In my opening remarks, I mentioned several specific adjustments to macroeconomic policies and monetary aggregate policies. Now I will introduce them in detail.
First, we will lower the reserve requirement ratio (RRR). In February of this year, we cut the RRR by 0.5 percentage points. This time, the RRR is planned to be cut by another 0.5 percentage points, which can provide about 1 trillion yuan of long-term liquidity to the financial market. At present, the weighted average RRR for financial institutions is 7%. Among this, the current RRR for large banks is 8.5%, which will be reduced from 8.5% to 8% after this adjustment. The current RRR for medium-sized banks is 6.5%, which will be reduced from 6.5% to 6% after this adjustment. Rural financial institutions have been implementing a RRR of 5% for a few years now, and this time it will remain the same. After the implementation of the RRR reduction policy, the average RRR of the banking sector is about 6.6%. Compared with the central banks of major economies around the world, we still have room. In terms of the RRR tool, we may further lower it by 0.25-0.5 percentage points within the year, depending on the liquidity situation.
Second, concerning lowering the policy rate, the interest rate on seven-day reverse repo operations is the major policy rate of the central bank at present. In July, we lowered the seven-day reverse repos rate from 1.8% to 1.7%. This time, it was trimmed by 20 basis points from 1.7% to 1.5%. Under the market-oriented adjustment mechanism on interest rates, the adjustment of the policy interest rate will lead to the adjustment of various market benchmark interest rates. It is expected that after the adjustment of the policy rate, the medium-term lending facility (MLF) interest rate is expected to drop by approximately 0.3 percentage points, and the loan prime rate (LPR) and deposit rate may decrease by 0.2 to 0.25 percentage points.
The adjustment of the interest rate has generally had a neutral impact on banks' net interest margins. Lowering mortgage rates for existing homes will reduce interest income for banks, but it will also reduce the mortgage prepayments of customers. The central bank's cutting of the RRR is equivalent to directly providing low-cost and long-term capital for banks' operation. The MLF and open market operations are the major ways for the central bank to offer short- and medium-term capital to commercial banks. Decreasing interest rates will also lower banks' funding costs. In addition, as mentioned earlier, it is expected that the LPR and deposit rates will have symmetrical reduction. Previously, we guided deposit rates downward several times through the interest rate self-regulatory mechanism, and the repricing effect will be cumulatively revealed. The repricing of deposit rates is slower than that of loan interest rates. Therefore, as deposit rates have been guided downward, the effect of repricing will be cumulatively revealed over time. As a result, in the design of the policy adjustment plan, the PBC's technical team has carried out several rounds of careful quantitative analysis and evaluation. The interest rate adjustment this time has had a neutral impact on banks' income and the net interest margin will remain basically stable. Thank you.
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